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HyreCar, Inc. – Designates Peer-to-Peer Car Rental Specialist Getaround, Inc. as Successful Bidder for Debtor’s Assets, with Stalking Horse Holmes Motors Pushed into Back-Up Bidder Role

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May 9, 2023 – Further to a March 17th bidding procedures order [Docket No. 140] and an auction concluded on May 8th, the Debtor designaged, Getaround, Inc.* (“Getaround”) as the successful bidder in respect of the sale of substantially all of the Debtor’s assets, with DIP lender and stalking horse Holmes Motors, Inc. (“Holmes Motors” or the “Stalking Horse Bidder,” $7.75mn stalking horse bid) designated as the backup bidder [Docket No. 255]. 

The Getaround APA has not been filed and terms have yet to be announced. A sale hearing is scheduled for May 15th.

* Getaround provides: "Offering a 100% digital experience, Getaround (NYSE: GETR) makes sharing cars and trucks simple through its proprietary cloud and in-car Connect® technology. The company empowers consumers to shift away from car ownership through instant and convenient access to desirable, affordable, and safe cars from entrepreneurial hosts. Getaround’s on-demand technology enables a contactless experience — no waiting in line at a car rental facility, manually completing paperwork, or meeting anyone to collect or drop off car keys. Getaround’s mission is to utilize its peer-to-peer marketplace to help solve some of the most pressing challenges facing the world today, including environmental sustainability and access to economic opportunity. Launched in 2011, Getaround is available today in more than 1,000 cities across the United States and Europe."

Case Status

On February 25, 2023, HyreCar, Inc. (OTCMKTS: HYRE; “HyreCar” or the “Debtor”) filed for Chapter 11 protection noting estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn (no funded debt; NB: unaudited financial statements have the Debtor’s assets at $16,480,799 and liabilities at $18,407,037, respectively, for year end 2022). At filing, the Debtor, who operates a virtual car-sharing marketplace that allows individual and commercial car owners to rent their idle cars to ride-sharing service drivers, noted that “the Company has experienced an unprecedented liquidity crisis on account of events largely outside the Company’s control, including: (a) a failed joint venture with AmeriDrive Holdings, Inc. intended to substantially increase the fleet of vehicles utilized on the Company’s platform; and (b) an $8 million debenture transaction that never closed; and (c) mounting legal fees from numerous lawsuits and investigations, including lawsuits/investigations relating to stock sales that occurred in 2021.”

On March 20th, the Court hearing the HyreCar case issued a final order authorizing the Debtor to access the $1.9mn balance of a $5.0mn new money debtor-in-possession (“DIP”) financing facility being provided by stalking horse Holmes Motors, Inc. (“Holmes Motors”). With a February 28th interim DIP order, the Court hearing the Debtor's case had previously allowed the Debtor to access a first $3.1mn tranche of the DIP financing.

On March 17th, the Court hearing the HyreCar case issued an order: (i) approving bid procedures in relation to the sale of substantially all of the Debtors’ assets, (ii) authorizing the Debtors to enter into stalking horse arrangements with debtor-in-possession ("DIP") lender Holmes Motors, Inc. (“Holmes Motors” or the “Stalking Horse Bidder,” $7.75mn bid*), including in respect of a $232k break-up fee and a $125k expense reimbursement, and (iii) adopting a proposed auction/sale timetable culminating in an auction on May 8th and a sale hearing on May 10th [Docket No. 140, with the Stalking Horse Bidder’s asset purchase agreement (the “APA”) attached as Exhibit B to Docket No. 72].

*Holmes Motors will provide a DIP loan of $5.0mn to be credited against the total cash consideration for the Stalking Horse Bid of $7.75mn. See "Marketing" below for more on Holmes Motors' efforts to acquire the Debtors' assets.

Bidding Procedures Motion

The motion [Docket No. 72] provides: “To preserve and maximize the value of the Debtor’s assets and promising operational outlook, the Debtor, in consultation with its advisors, determined that a sale of the Debtor’s assets through this Chapter 11 Case is the best path forward. As described herein, the Debtor has negotiated the Asset Purchase Agreement dated as of March 2, 2023 with the Stalking Horse Bidder, a copy of which is attached hereto as Exhibit B (the ‘Stalking Horse Agreement’) and looks forward to a robust and competitive sale process.”

Marketing Efforts

The bidding procedures motion provides: "…in late January and early February 2023, the Debtor learned that the second tranche of the Preferred Equity Transaction was not going to close, and therefore the Debtor would not receive the anticipated $8 million in capital from Debentures to be issued in connection therewith. Without such capital, the Debtor immediately entered a liquidity crisis. In an effort to fund operations in the near future, the Debtor promptly began to explore strategic alternatives to raise debt or equity capital. 

In late January 2023, just as the Debtor began to enter this liquidity crisis, the Debtor received an unsolicited communication from William F. Holmes ('Holmes'), informing the Debtor that he had recently purchased approximately 6% of the Company’s stock and that he was interested in purchasing the Company through his company Holmes Motor Group, LLC ('Holmes Group'). Prior to this, other than Holmes’ stock holdings in HyreCar, Holmes, Holmes Group, and Holmes Motors (as defined below) had no contractual, employment, or other relationship or affiliation with the Company or any of the Company’s insiders.

Holmes’ initial proposal contemplated an out-of-court public-to-private stock acquisition via merger. During those negotiations, the urgent liquidity needs of the Company coupled with pending litigation and other claims against the Company became readily apparent. Thus, the negotiations quickly pivoted to the exploration of an asset sale through a chapter 11 process with a company affiliated with the Holmes Group, Holmes Motors, Inc. ('Holmes Motors”, the 'Stalking Horse Bidder' or the “DIP Lender”) providing debtor-in-possession financing sufficient to fund operations through and a section 363 sale process.

Concurrently with the negotiations with the Stalking Horse Bidder, the Debtor, with the assistance of its professionals, continued to engage with potential purchasers to ensure a robust and competitive sale process that maximizes value for the Debtor’s stakeholders. Prior to the Petition Date, the Debtor utilized the services of Northland Capital Markets ('Northland'), which was initially engaged in November 2022 to assist in raising capital. Northland’s principal involvement was in connection with the Preferred Equity Transaction. As the Company’s liquidity became a dire issue, and discussions changed from an out-of-court stock purchase by the Holmes Group, which would have resulted in payment in full to the Preferred Equity Holders, to an incourt section 363 sale, in which the Preferred Equity Holders hold a lower distribution priority, the Debtor determined that Northland could no longer be an unbiased investment banker. As such, the Debtor has filed a motion seeking to reject its prior engagement agreement with Northland nunc pro tunc to the Petition Date which is scheduled for hearing on March 16, 2023. Leading up to the Petition Date, the Debtor’s management met with numerous potential purchasers some of which have expressed an interest in submitting an overbid in connection with the proposed sale."

In a declaration in support of the motion [Docket No. 73], James Zukin, Managing Partner at Zukin Partners, LLC (the Debtors’ investment banker and replacing) makes it clear that their marketing efforts are at an early stage, providing “…Zukin has created a list of over 100 companies, and 300 total contacts inclusive of contact information for each contact. Zukin is also in the process of creating a secure virtual data room (the 'Data Room') with shared administrative controls between the Debtor and Zukin where due diligence information will be electronically stored for review by potential bidders. Zukin plans to continue drafting the CIM until it is able to render a final draft with the Debtor…"

Petition Date Perspective

Goals of the Chapter 11 Filings

The Inguez Declaration (defined below) provides that the Debtor will use the bankruptcy to pursue "a sale of substantially all its assets with proposed DIP financing to fund operations and administration of the case, including a 363 process."

Stalking Horse Bid and DIP Financing

The Inguez Declaration provides: …in "January 2023 I received a communication from William F. Holmes ('Holmes') that he had recently purchased approximately 6% of the Company’s stock (and that he had filed the necessary Schedule 13D) and that he was interested in purchasing the Company through his company Holmes Motor Group, LLC ('Holmes Group')….Holmes’ initial proposal contemplated an out-of-court public-to-private stock acquisition via merger. During those negotiations, the urgent liquidity needs of the Company coupled with the pending litigation and other claims against the Company became readily apparent, and thus, the negotiations quickly pivoted to the exploration of an asset sale through a chapter 11 process with a company affiliated with the Holmes Group, Holmes Motors, Inc. ('Holmes Motors' the 'DIP Lender' or the 'Stalking Horse Bidder') providing debtor-inpossession financing sufficient to fund operations through and a section 363 sale process.

After extensive negotiations with Holmes Motors and the Debtor’s advisors, the Debtor and the Stalking Horse Bidder agreed to the terms of DIP financing, discussed below, and the material terms of an asset purchase agreement, in the form of a Term Sheet [which is attached to the declaration at Exhibit A] (the 'Stalking Horse Bid'), subject to final documentation. The Term Sheet contemplates that Holmes Motors will provide a DIP loan of $5 million to be credited against the total cash consideration for the Stalking Horse Bid of $7.75 million, subject to higher or otherwise better offers."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Inguez Declaration”) [Docket No. 15], Eduardo Iniguez the Debtor's Chief Executive Officer, provides: “the Company has experienced an unprecedented liquidity crisis on account of events largely outside the Company’s control, including: (a) a failed joint venture with AmeriDrive Holdings, Inc. intended to substantially increase the fleet of vehicles utilized on the Company’s platform; and (b) an $8 million debenture transaction that never closed; and (c) mounting legal fees from numerous lawsuits and investigations, including lawsuits/investigations relating to stock sales that occurred in 2021.

HyreCar’s path to profitability has never been a question of customer demand. In key markets there are more drivers than available vehicles. To address the deficiency in supply/vehicles, HyreCar has explored strategic relationships with fleet owners and other companies with access to a large number of vehicles to meet demand. HyreCar believed it found such a relationship with AmeriDrive Holdings, Inc. ('AmeriDrive') – a large fleet operator on the HyreCar platform with what was believed to be scalable infrastructure and technology.

In September 2022, HyreCar entered into a joint venture with AmeriDrive and formed HyreDrive, LLC ('HyreDrive'), established for the primary purpose of expanding the strategic relationship between HyreCar and AmeriDrive and creating a facility to purchase and hold a large fleet of cars to be used exclusively on the HyreCar platform. HyreCar holds a 1% membership interest in HyreDrive, and AmeriDrive holds the remaining 99%. HyreDrive is a special purpose entity, and, its assets, liabilities and results of operations are not consolidated with those of HyreCar. HyreDrive established a bankruptcy remote, wholly owned subsidiary of HyreDrive and a titling trust (the 'Vehicle Trust') to facilitate the acquisition and financing of vehicles. 

As a part of the AmeriDrive agreement, Credit Suisse agreed to provide up to $70 million in an initial warehouse facility, Medalist Partners agreed to provide $20 million, and HyreCar agreed to put in $10 million for the purchase of vehicles through the joint venture. Each party agreed to provide its proportionate share of the borrowing base, resulting in HyreCar being required to put in $1 million for every $10 million borrowed against the line. In addition to the 10% contribution, HyreCar also agreed to pay a 2 percent transaction fee, hold 2 percent in reserves, and maintain an unrestricted cash balance of $6 million, among other requirements.

In connection with the joint venture, HyreCar executed a Performance Guaranty dated September 2, 2022 (the 'Performance Guaranty') in favor of the Vehicle Trust. Pursuant to the Performance Guaranty, the Company guaranteed to the lenders (Credit Suisse and Medalist Partners) the performance by AmeriDrive and HyreDrive in connection with their respective obligations identified in a Base Indenture with the Vehicle Trust.

The AmeriDrive joint venture quickly evolved into a failed investment due to AmeriDrive’s failure to perform. HyreCar received notice that Credit Suisse directed the trustee to exercise its rights and/or remedies under the Performance Guaranty due to, among other things, HyreDrive’s failure to purchase vehicles meeting certain contractual criteria. Thus, the trustee demanded that HyreCar, pursuant to the Performance Guaranty, pay for nonqualifying vehicles in an amount in excess of $3 million. 

On February 1, 2023, in relation to the Company’s joint venture with AmeriDrive, the Company received confirmation that liquidation of vehicles purchased by the joint venture would proceed.

On February 13, 2023, HyreCar was further served notice that Credit Suisse had begun to liquidate the vehicles held in the Vehicle Trust due to HyreDrive’s failure to perform."

Prepetition Indebtedness

As of the Petition date, the Debtor held no secured debt obligations. The Debtor also has unsecured obligations to various other creditors, including (i) ordinary trade creditors, (ii) its landlord, (iii) former executives, (iv) pre-petition legal and other professional fees and (v) contingent and disputed litigation claimants. For the period ended September 30, 2022, the Debtor’s financial statement filed with its 10-Q Quarterly Report reflects total liabilities of $15,426,000.

Prepetition Shareholders

Arctis Global LLC is the only corporate entity that directly or indirectly owns 10% or more of any class of HyreCar Inc.’s equity interests. As noted above, William F. Holmes, the stalking horse's principal, holds 6%.

About the Debtors

According to the Inguez Declaration adds: "HyreCar is a publicly traded emerging growth company formed in November 2014 in response to a need for a car-sharing platform for individuals who wanted to drive for ridesharing companies such as Uber Technologies Inc. and delivery companies such as DoorDash, Inc., but who either did not have access to their own vehicles or whose automobiles could not meet the standards imposed by the ride-sharing or food and package delivery service companies, such as excluding cars that were beyond a certain age.

The Company’s core business is the operation of a digital car-sharing marketplace that allows individual and commercial car owners to rent their cars to ride-sharing and delivery service drivers. The Company does not own or lease any of the cars utilized in the car-sharing marketplace. The Company further provides commercial automobile insurance coverage to both car owners and drivers through the marketplace, limited to periods when the driver is actively engaged in ridesharing or delivery of food or packages 

HyreCar’s proprietary car-sharing marketplace has been developed to (i) onboard car owners and drivers, (ii) facilitate the matching of car owners and drivers and (iii) log rental activity for owners and drivers. All transactions related to the rental (including, but not limited to, identity verification, background checks, rentals, deposits and insurance costs) are run securely through the HyreCar platform. Drivers and owners access their rental or car dashboards through a unique login. Drivers can register, apply, initiate, terminate and extend a rental through the web platform or mobile application while owners can manage their car or fleet of cars through the owner web platform."

 

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The post HyreCar, Inc. – Designates Peer-to-Peer Car Rental Specialist Getaround, Inc. as Successful Bidder for Debtor’s Assets, with Stalking Horse Holmes Motors Pushed into Back-Up Bidder Role appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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