November 8, 2023 – Anagram Holdings, LLC and two affiliated debtors (dba Anagram Balloons; together “Anagram” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90901 (Judge Marvin Isgur). The Debtors, "a leading manufacturer of foil balloons," are represented by Tom A. Howley of Howley Law PLLC. Further Board authorized appointments include: (i) Simpson Thacher & Bartlett LLC as general bankruptcy counsel, (ii) Ankura Consulting Group, LLC as financial advisors, (iii) Robert W. Baird & Co as investment bankers and (iv) Kurtzman Carson Consultants as claims agent.
The Debtors are 100% owned by non-Debtor Party City Holdings, Inc., a subsidiary of Party City Holdco Inc. ("PCHI"), which emerged from its own bankrupcty on October 12th (same court, lead case No. 23-90005) owned by former secured noteholders who exchanged @$911.0mn of debt for equity in the emerged PCHI. The Debtors go to pains to make clear the filings are completely separate although "Anagram continues to support PCHI as a valued retail partner." See the PCHI structure chart below.
The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $100.0 and $500.0mn; and estimated liabilities between $100.0 and $500.0mn ($240.4mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) TSG Server & Storage, Inc ($1.1mn trade claim), (ii) Formerra, LLC/Aventient Corporation ($680k trade claim ) and (iii) Party Fashion Co., Ltd ($652k trade claim).
In a press release announcng the filing, the Debtors provide: "Anagram announced that it is pursuing a sale of the Company and has entered into an agreement with a group of its lenders as the 'Stalking Horse' bidder to acquire its assets, subject to higher or otherwise better offers and court approval."
The stalking horse bid submitted on behalf of cretain First Lien Noteholders (holding 60%) and DIP Noteholders includes (i) a credit bid for all of the First Lien Notes ($125.3mn, see "Indebtedness" table below) and DIP Notes ($22.0mn), plus (ii) cash in an amount sufficient to repay the DIP ABL Facility ($15.0mn) and fund a minimum amount of wind down expenses of the Debtors’ estates plus (iii) assumption of the material liabilities.
In August, Bloomberg reported that PCHI was looking to spin-off Anagram, although clearly not at the time as part of an in-court sale process.
Goals of the Chapter 11 Filings
The Frankum Declaration (defined below) provides: "The Debtors intend to use these chapter 11 proceedings to consummate a sale of all or substantially all of their assets and have secured a stalking horse credit bid (subject to higher or better offers) that provides for the credit bid of the full amount of both the DIP Notes Facility and the First Lien Notes, as well as the assumption of all trade claims and the transfer of all employees on terms no less favorable than their current employment terms."
DIP Financing
The press release adds: "The Company has received a commitment of $22 million in debtor-in-possession financing ('DIP') from the group of existing secured lenders. Following court approval, this new financing, combined with cash on hand and positive cash flow being generated from the Company's ongoing operations, will adequately support the business and satisfy obligations during the court-supervised process." As noted below, there is also a $15.0mn prepetition-turned-DIP ABL facility.
Early court filings indiate that the DIP financing will come in the form of: (i) $22.0mn of new money DIP notes, with GLAS Trust Company LLC, as trustee and collateral agent and (ii) a $15.0mn DIP ABL credit facility "in substantially the form" as their $15.0mn May 2021 prepetition ABL Credit Agreement, with Wells Fargo Bank, National Association (now as then) the administrative agent. No details yet, but look for the new money to be coming from the DIP notes and used to free up some headroom under the prepetition-turned-DIP ABL facility.
Events Leading to the Chapter 11 Filings
In a declaration in support of first day filings (the “Frankum Declaration) [Docket No. 19], Adrian Frankum, the Debtors’ CRO commented: “Since 2020, the Debtors have continued to encounter financial challenges resulting from, among other things, unsustainable levels of debt on their balance sheet, the COVID-19 pandemic and its lingering effects, and cash distributions from the Company to Party City. Moreover, global inflation and helium shortages have exacerbated these challenges and have further strained the Debtors’ liquidity. The Company’s adjusted EBITDA declined from approximately $52 million in 2021 to approximately $29 million in 2022.
Drilling down, Frankum continues: "The Debtors’ business was significantly impacted by the COVID-19 pandemic, as demand for gathering-oriented party products, like the balloons that the Company manufactures, plummeted. The impacts of the COVID-19 pandemic led to reduced order flow and employee furloughs during the period April to August 2020, thus forcing the Company to seek incremental liquidity to operate its business, fund its debt, and service its commercial and other obligations.
Additionally, a global shortage of helium gas due primarily to decreased market supply from major producers has resulted in increased helium prices, which has negatively impacted the Company’s bottom line. The Company’s sales of foil balloons to consumer products purchasers at wholesale typically decline as the supply of helium decreases and the price increases.
Similarly, overall global inflation has negatively affected the Company’s operating margins. The elevated costs of raw materials, inventory, direct labor wages and other services have increased pressure on the Company without a corresponding ability to meaningfully raise prices to levels that effectively offset inflation (i.e., lower margins).
These operational challenges, in turn, placed a significant strain on the Debtors’ liquidity. While the 2020 Exchange Transaction provided the Debtors with some incremental liquidity to support its operations and weather the COVID-19 pandemic, the relief was limited. In May 2021, the Company entered into the ABL Facility to obtain additional liquidity for its operations, but the additional liquidity infusion still proved insufficient to fully offset the excess debt and other significant headwinds the Company has faced.
Certain intercompany transactions between the Debtors and Party City have also placed additional pressure on the Debtors’ liquidity. In August 2022, Party City borrowed $22 million from the Debtors through an intercompany loan pursuant to a promissory note which has not been satisfied and will be treated as a general unsecured claim under Party City’s Chapter 11 Plan. Subsequently, in March 2023, the Debtors also discovered that Party City has overcharged them for reimbursements related to Party City’s group tax payments aggregating approximately $7 million.
In July 2020, during the COVID-19 pandemic, Party City implemented the 2020 Exchange Transaction, which increased the Debtors’ leverage. Specifically, Party City commenced an offer to exchange ('Exchange Offer') any and all of Party City’s then existing unsecured notes ('Existing PC Debt') for, among other things, the Second Lien Notes to be issued by Anagram, and commenced a rights offering ('Rights Offering') permitting holders of Existing PC Debt to subscribe to First Lien Notes to be issued by Anagram. As a result of the Exchange Offer and Rights Offering, Anagram issued $110 million aggregate principal amount of First Lien
Notes and $84.7 million aggregate principal amount of Second Lien Notes, increasing the Company’s overall indebtedness by approximately $194.7 million.
Given the financial and operational challenges that the Debtors have faced since the 2020 Exchange Transaction, the Debtors’ existing capital structure is unsustainable.
Over the last few months, the Debtors’ relationship with Party City has become strained, predominantly due to: (i) Party City’s failure to repay the Intercompany Promissory Note (ii) Party City’s overcharging of the Debtors for tax liabilities and (iii) Party City’s threatened rejection of the Anagram-Party City Contracts. These disputes have dealt significant blows to the Debtor’s operating liquidity and debt service capacity, and continue to threaten the Debtors’ operations."
Prepetition Indebtedness
As of the Petition date, the Debtors long-term debt obligations totaled $240.4mn. The outstanding amounts and priorities of each debt obligation are as follows:
About the Debtors
Founded in 1977, Anagram International leads the world in innovating and manufacturing foil balloons. Headquartered in Eden Prairie, Minnesota, our dedicated team includes Research & Development, Creative, Product Development, Engineering, Manufacturing, Quality Control, Distribution, Marketing, Sales and Customer Service. With a strong commitment to innovation, Anagram proudly celebrates countless first-to-market product solutions, including AirWalkers®, AirLoonz®, and Xtra-Life® Technology. We offer the largest portfolio of licenses and license character products combined with a trend-forward non-license portfolio for everyday occasions and seasonal celebrations. We proudly offer many product formats only sold via the Anagram brand. Through a strong network of distribution partners, Anagram balloons are sold in over 140 countries. Sharing in small moments of joy and grand celebrations for over 40 years, Anagram's mission is to create joy, on purpose, every single day. Visit www.anagramballoons.com for more information.
According to the Debtors: "Anagram leads the world in making balloons fun with consumer-inspired – and inspiring – product development, industry-expanding innovation and strong, value-added partnerships.We proudly offer many products you'll only find with an Anagram label. Our dedicated-to-the joy employees are focused on creating the best product and the biggest smiles possible. At Anagram, we strive to create joy, on purpose, every single day. ”
PCHI Structure (sourced from PCHI's bankruptcy filings)
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