| Introduction On October 18, 2017, (the “Petition Date”), Mac Acquisition LLC, Mac Parent, LLC, Mac Holding LLC, Mac Acquisition of New Jersey LLC, Mac Acquisition of Kansas, LLC, Mac Acquisition of Anne Arundel County LLC, Mac Acquisition of Frederick County LLC, Mac Acquisition of Baltimore County LLC and Macaroni Grill Services LLC (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The proposed counsel to the Debtors is Gibson, Dunn & Crutcher LLP and Young Conaway Stargatt & Taylor, LLP, as proposed Delaware counsel. The case has been assigned to Judge Mary F. Walrath. A hearing on the Debtors’ first day motions is scheduled for October 19, 2017 at 2:00 p.m. A meeting to form the Official Committee of Unsecured Creditors has not yet been scheduled.
Background The Debtors operate full-service casual dining restaurants under the trade name, “Romano’s Macaroni Grill.” As of the Petition Date, the Debtors operated 93 company-owned restaurants located in 23 states, with a workforce of approximately 4,600 employees. The Debtors’ non-Debtor affiliate, RMG Development, also franchises an additional 23 restaurants in Florida, Hawaii, Illinois, Texas, Puerto Rico, Mexico, Bahrain, Egypt, Oman, the United Arab Emirates, Qatar, Germany, and Saudi Arabia. During 2016, the Debtors and RMG generated gross revenues through restaurant sales and franchisee payments of approximately $230 million. The Debtors commenced the Chapter 11 Cases to implement a balance sheet and operational restructuring. Shortly after the Petition Date, the Debtors intend to file a chapter 11 plan (the “Proposed Plan”) that implements the Debtors’ proposed restructuring and that de-leverages the Debtors’ balance sheets. The Proposed Plan has the support of two of the Debtors’ largest secured creditors, Bank of Colorado (“BOC”) and Riesen Funding LLC (“Riesen Funding”), which collectively hold more than $23 million of secured claims. Both BOC and Riesen Funding have entered into a restructuring support agreement (the “RSA”) with the Debtors.
Financial Condition In 2015, RedRock Partners, LLC (“RedRock”), an Arizona limited liability company, acquired 100% of the membership interests in debtor Mac Parent, LLC (and indirectly in each of the Debtors) for a cash purchase price of $8 million. Since RedRock acquired the Debtors, the Debtors’ operations have failed to produce sufficient cash flow to cover all operating expenses and to service their debt obligations. The Debtors’ trailing twelve month EBITDA as of August 2017 was approximately negative $12 million. This financial performance reflects all restaurants, including closures. The Debtors’ losses were the product of several factors, including a decrease in the Debtors’ top line sales and its profit margins as a result of increased costs for both commodities and labor. The Debtors have outstanding secured obligations to several lenders and creditors. As of the Petition Date, approximately $12,033,000 in principal and accrued interest was outstanding to the Bank of Colorado under a revolving loan, with approximately $4,100,000 of that amount representing undrawn letters of credit. The Debtors also arranged have an outstanding term loan with BOC in which, as of the Petition Date, approximately $2,396.065 in principal and accrued interest was outstanding. Shortly prior to the Petition Date, on or about September 19, 2017, BOC provided the Debtors with an additional line of credit in the amount of $3,500,000 (the “$3.5M Loan”). As of the Petition Date, approximately $3,500,015 in principal and accrued interest was outstanding under the $3.5M Loan. In addition, on or about July 3, 2017, the Debtors received a loan in the amount of $5,000,000 (the “Riesen Funding Loan”) from Riesen Funding. As of the Petition Date, approximately $5,130,000 in principal and accrued interest was outstanding under the Riesen Funding Loan. Riesen Funding has agreed to subordinate its liens to the liens to be granted to the DIP Lenders. Further, Riesen Funding has entered into the RSA, pursuant to which Riesen Funding has agreed, pursuant to the Proposed Plan, to accept the equity in the reorganized Debtors. In addition to the loans with BOC and Riesen Funding, two of the Debtors’ key suppliers-Sysco Corporation (“Sysco”) and Edward Don & Company (“Edward Don”)-have filed UCC-1 financing statements to perfect security interests they assert against certain assets of the Debtors. As of the Petition Date, the balance owing to Sysco was approximately $2,500,000 and the balance owing to Edward Don was approximately $500,000. Cisco Systems Capital Corporation has also recorded a UCC-1 financing statement relating to a lease of certain equipment to the Debtors. The balance owing to Cisco as of the Petition Date was approximately $100,000.
Motion for DIP Financing
The Debtors are seeking authority to enter into a Debtor-in-Possession facility with Raven Capital Management LLC (“Raven”) that will provide up to $5 million of post-petition financing with $3 million available on an interim basis. This facility may be converted into exit financing, assuming certain conditions are satisfied, of up to an additional $8.5 million in available exit financing. The Debtors assert that they need the cash available under the DIP Facility to fund ongoing operating expenses as well as the necessary administrative expenses of bankruptcy. Without the DIP facility, the Debtors would not be able to fund ongoing operating expenses, including payroll, on an ongoing basis, and bankruptcy-related expenses during these cases.
Other Significant First Day Motions: Wages and Benefits Motion The Debtors seek authority to pay certain employee obligations and maintain and continue employee benefits programs and schedule a final hearing on the motion. As of the Petition Date, the Debtors employ approximately 4,612 employees (the “Employees”)in 23 states. The Debtors also utilize the services of approximately eight contract workers. The Debtors estimate that, as of the Petition Date, they owe approximately $1.75 million on account of accrued and unpaid prepetition salaries and wages.
Critical Trade Motion The Debtors are seeking authority to pay certain prepetition claims of certain critical trade vendors in amounts up to $700,000.00. The debtors assert that approximately $400,000 of these claims are on account of claims entitled to administrative expense priority under section 503(b)(9) of the Bankruptcy Code to the extent the Debtors received goods in the ordinary course of business within the 20-day period immediately prior to the Petition Date. The Debtors reserve the right to negotiate different trade terms with any critical vendor as a condition to payment.
PACA/PASA Motion The Debtors are seeking authority to pay up to an additional $2.75 million in claims under the Perishable Agricultural Commodities Act of 1930, as amended, 7 U.S.C. §§ 499a-499t (“PACA”) and the Packers and Stockyards Act of 1921, as amended, 7 U.S.C. §§ 181-231 (“PASA”) Approximately $2 million of that amount would also qualify for priority status under Bankruptcy Code section 503(b)(9).
Customer Programs Motion The debtors are seeking authority to continue, maintain, and to pay pre-petition obligations related to, their pre-petition customer programs which include, but are not limited to, the following: (a) co-branded, prepaid gift cards; (b) prepaid gift cards sold by the Debtors; (c) various coupon, discounts, promotions and all such other similar policies, programs, and practices of the Debtors; and (d) the Customer Refunds. The debtors estimate that more than $4 million is outstanding under these customer programs.
Taxes Motion The Debtors are seeking authority to pay certain prepetition taxes and fees that, in the ordinary course of business, accrued or arose prior to the Petition Date. During the 2016 calendar year, the Debtors paid approximately $18.8 million in the aggregate in sales taxes, with a monthly average of approximately $1.5 million. The Debtors estimate that, as of the Petition Date, approximately $1.6 million on account of sales taxes has accrued and is unpaid. The Debtors also pay taxes to certain taxing authorities in connection with liquor sales made at the Debtors’ restaurants (collectively, the “Liquor Taxes”). During the 2016 calendar year, the Debtors paid approximately $0.4 million on account of Liquor Taxes, with a monthly average of approximately $30,000. The Debtors estimate that, as of the Petition Date, approximately $35,000 on account of Liquor Taxes has accrued and is unpaid. The Debtors also pay certain Fees, which include business license and permit fees in various jurisdictions and fees and taxes for annual reports, permits, liquor licenses, and health and fire inspections. Over the trailing twelve months the Debtors remitted approximately $0.4 million on account of Fees related to locations currently operating, with a monthly average of approximately $35,000. The Debtors estimate that, as of the Petition Date, approximately $35,000 on account of Fees has accrued and is unpaid.
Insurance Motion The Debtors seek authority to maintain existing insurance policies and pay all obligations and to renew, revise, extend, supplement, change, or enter into new insurance policies as needed. The Debtors pay approximately: $718,112 in the aggregate in annual premiums for property policies; $588,226 for casualty policies; $155,664 for management liability policies; and $646,580 for workers’ compensation policies. If we can be of service, please contact me.
Thank you, Rafael X. Zahralddin-Aravena Commercial Bankruptcy and Commercial Restructuring Chair Elliott Greenleaf P.C. The I.M. Pei Building Wilmington, Delaware 19899 Direct: 302-384-9401 Cell: 302-545-2888 |
