April 30, 2023 – Privately-held DeCurtis Holdings LLC and one affiliated debtor (together “DeCurtis” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 23-10548 (Judge TBA). The Debtors, a "leader in transformational experience technology focused on cruise [experiences],*" are represented by Christopher A. Samis of Potter Anderson & Corroon LLP. Further Board authorized appointments include: (i) Cooley LLP as general bankruptcy counsel, (ii) Province, LLC ("Province") as financial advisors and (iii) Omni Agent Solutions, Inc. as claims agent. NB: Groombridge, Wu, Baughman & Stone LLP, which served as counsel in the carnival litigation (and is owed $4.8mn in respect of their efforts) will continue as "special counsel."
* As noted below, the Debtors are majority owned by Shamrock Capital Growth Fund IV, L.P.
The Debtors’ lead petition notes between 50 and 100 creditors; estimated assets between $10.0mn and $50.mn; and estimated liabilities between $50.0mn and $100.0mn ($43.5mn in funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Carnival Corporation & PLC ($21.0mn disputed litigation claim), (ii) City National Bank ($9.8mn unsecured bank loan claim) and (iii) Groombridge, Wu, Baughman & Stone LLP ($4.8mn professional services claim).
Filing Date Highlights
- Shamrock Capital-Controlled Provider of Indoor Cruise Experiences Files for Bankruptcy After "Unexpected" Adverse Holding in IP-Related Litigation with Carnival Corporation
- Enters Bankruptcy with $43.5mn of Funded Debt and $45.0mn of Unsecured Debt
- Will Pursue Asset Sale with First Lien Lenders Serving as Credit Bidding Stalking Horse
- Lines Up $6.5mn of DIP Financing from First Lien Lenders ($2.0mn Interim), with Those Lenders Having Provided $2.8mn of Bridge Financing
Goals of the Chapter 11 Filing
The Atkinson Declaration (defined below) provides: "DeCurtis’s goals in this case are to preserve its business as a going concern to maximize the value of its estate….After exploring strategic alternatives, the Debtors determined that the best and only way to preserve and maximize their value is by consummating a Section 363 sale of substantially all of their assets to certain of their first lien lenders (the 'Stalking Horse Bidder') through a credit bid, subject to higher and better offers at an auction.
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Atkinson Declaration), Michael Atkinson of Province (engaged for all of five day as at at filing) commented: “…in early 2020, DeCurtis was forced to initiate litigation against one of its prior clients, Carnival Corporation ('Carnival'), following Carnival’s interference with DeCurtis’s customer contracts with Carnival’s competitors. Specifically, it is my understanding that Carnival threatened those other cruise lines (DeCurtis’s customers) with litigation based on accusations that DeCurtis technology misappropriates and infringes upon Carnival intellectual property. DeCurtis believes that those threats were an attempt to put it out of business and preclude it from selling its guest engagement systems and methods to other cruise line operators. And the threats to DeCurtis’s customers, as I understand, had a significant impact on DeCurtis because Carnival is the largest cruise ship operator in the world, with nine different cruise lines and 45% of the market, while DeCurtis is a much smaller company.
In the wake of Carnival’s threats to DeCurtis’s customers, I understand that certain of DeCurtis’s current and prospective customers ceased to do business with DeCurtis. As a result of Carnival’s threats, DeCurtis believes its reputation in the market was destroyed alongside its relationships with its actual and potential customers. Carnival and DeCurtis subsequently became entangled in litigation in April 2020. During the litigation, DeCurtis continued business, to the extent it was able, with the cloud of Carnival’s accusations hanging over it and the financial pressures from the cruise industry shutting down due to the COVID-19 pandemic. In 2020, DeCurtis only generated approximately $7 million in revenue and had negative gross profits. However, in 2021, DeCurtis’s business began to recover, and DeCurtis generated revenue of approximately $15 million in fiscal year 2021, and $12 million in fiscal year 2022, with gross profits of approximately $7 million and $3 million, respectively.
This changed in early 2023 when the Carnival Litigation proceeded to trial. The Carnival Litigation unexpectedly resulted in an adverse jury verdict in favor of Carnival on Carnival’s patent infringement and breach of contract claims against DeCurtis that has been memorialized in a non-final judgment. I have been informed that Carnival’s counsel has also publicly threatened to seek entry of injunctive relief against DeCurtis and its customers in furtherance of the judgment.
….DeCurtis was compelled to file these cases because it lacks the liquidity to satisfy the judgment, post a supersedeas bond to halt execution of the judgment, or pay the associated legal expenses necessary to quickly challenge the judgment. Indeed, prior to filing these cases, DeCurtis entered into an emergency bridge loan with certain of its first lien lenders, absent which DeCurtis would have been unable to fund critical ongoing expenses, including payroll."
The Debtors have committments for $6.5mn of debtor-in-possession ("DIP") financing ($2.5mn interim) from their first lien (the “DIP Lenders”) with that financing to include a roll-up of the Debtors' prepetition secured obligations. In the run-up to the Debtors' Chapter 11 filings, the prepetition-turned-DIP Lenders provided the Debtors with a $2.78mn bridge loan. Invictus Global Management, LLC, coming off its difficult in the Tuesday Morning Chapter 11 cases, is to serve as administrative and collateral agent.
As of the Petition date, the Debtors had approximately $43.54mn in total funded debt obligations, consisting of: (a) approximately $20.74mn in aggregate principal amount outstanding under a prepetition senior convertible term loan facility (the “Senior Secured Credit Facility”); (b) approximately $13.0mn in aggregate principal amount outstanding under a junior term loan facility (the “CNB Credit Facility”); and (c) approximately $9.8mn in aggregate principal amount outstanding under a term loan facility issued in connection with the Main Street Lending Program established by the Board of Governors of the Federal Reserve System of the United States pursuant to Section 13(3) of the Federal Reserve Act with funds, in part, appropriated by the Secretary of the Treasury to the Exchange Stabilization Fund pursuant to Section 4027 of the CARES Act (the “Main Street New Loan Facility”). The following table summarizes DeCurtis’s prepetition capital structure:
As of the Petition Date, the Debtors estimate there are approximately $45.0mn in potential aggregate general unsecured claims, including the litigation related claims.
As of the Petition Date, DeCurtis Holdings LLC’s voting membership interests are primarily held by affiliates of Shamrock Capital Growth Fund IV, L.P. and DeCurtis Investments, Inc., an investment vehicle controlled by David DeCurtis. DeCurtis Holdings LLC also has certain non-voting employee holders and unallocated interests.
About the Debtors
According to the Debtors: “DeCurtis Corporation is the first choice for agile, product-focused SaaS software solutions powering any indoor, complex environment. We are the leader in transformational experience technology focused on cruise but applicable to restaurants, theme parks, and the extended hospitality industry. With a vast range of experience working with some of the world’s best, most-recognized brands, DeCurtis Corporation transforms existing client experiences to make them better, faster and stronger through creative application of the latest technology. Pairing deep industry knowledge with that technology, DeCurtis Corporation transforms day-to-day experiences for clients and their guests. “
The Atkinson Declaration adds: "DeCurtis provides guest experience and operational management product-focused SaaS software solutions designed to power any indoor, complex environment. DeCurtis is the industry leader in transformational experience technology focused on the cruise line industry, and DeCurtis makes software systems used for providing guests a seamless experience with cruise ship facilities through the use of wireless sensing technologies. Beyond the cruise line industry, DeCurtis’s products and services are also applicable to restaurants, theme parks, and the extended hospitality industry, with the potential to expand into healthcare and other settings."
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