Introduction
On April 5, 2018, (the “Petition Date”), VER Technologies HoldCo LLC, CPV Europe Investments LLC, FAAST Leasing California, LLC, Full Throttle Films, LLC, Maxwell Bay Holdings LLC, Revolution Display, LLC, VER Finco, LLC, VER Technologies LLC and VER Technologies MidCo LLC (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 Debtors are represented by Kirkland & Ellis LLP as lead counsel and Klehr Harrison Harvey Branzburg LLP as Delaware counsel. The case has been assigned to the Honorable Kevin Gross. A first day hearing occurred on April 6, 2018. A meeting to form the Official Committee of Unsecured Creditors occurred on April 12, 2018. The second day hearing is scheduled for May 4, 2018 at 1:30 p.m.
Background
The Debtors, together with their non-Debtor subsidiaries, are one of the largest suppliers of rental production equipment and solutions in the world, having recently completed projects on six continents. Through their thirty-five (35) North American and European offices, the Debtors and their non-Debtor subsidiaries rent and provide support services for a broad variety of audio, video, and lighting equipment, including, among other things, microphones, monitors, speakers, cameras, lenses, automated lighting equipment, spotlights, special effects technology, and LED technology. The Debtors’ domestic locations consist of six hubs and 21 branch locations, including a design and engineering facility, a machine shop, an LED calibration facility, six camera preparation facilities, and the corporate headquarters is in Glendale, California.
As the Debtors expanded into new service lines so did the operational challenges they faced. These challenges led to significant losses,which the Debtors were required to finance with borrowings from the prepetition ABLfacility. Beginning in October 2016 and continuing through the Petition Date, the Debtors’ outstanding balance under the prepetition ABL agreement exceeded $270.0 million and as a result, at the beginning of each business day, any balances in the Debtors’ primary depository accounts were automatically swept to the ABL agent and applied to the outstanding balance on the prepetition ABL facility. This cash dominion arrangement further exacerbated the Debtors’ liquidity situation.
To improve the Debtors’ liquidity position and recapitalize their balance sheets, Debtors alternatives included a discussion regarding a potential going-concern sale or merger outside of a chapter 11 proceeding, a going-concern sale or merger through a chapter 11 proceeding, and a stand-alone restructuring of the balance sheet with the consent of a steering committee of the Debtors’ ABL and prepetition term loan facility lenders, either in or outside of chapter 11. In the interim, Debtors acknowledge an inability to continue operating without additional liquidity so they sought bridge financing from their prepetition term loan facility lenders to enable them to continue to pursue their restructuring alternatives. Certain of the Debtors’ prepetition term loan facility lenders provided this liquidity, which extended the Debtors with enough time to execute a restructuring support agreement (“RSA”) with a strategic partner and certain of the Debtors’ key stakeholders.
Financial Condition
Through the RSA, the Debtors have lined up DIP facilities of $364.7 million to continue operations and preserve the value of the estates, and can proceed with a prearranged chapter 11 plan that provides the Debtors with (a) a restructuring of more than $760 million in funded debt and (b) a merger with a strategic partner to enable the combined company to emerge as a stronger combined business, so they are better able to meet evolving client needs and offer solutions, resources, and expertise in ways neither the Debtors nor the strategic partner could achieve independently.
The following table summarizes the Debtors’ funded-debt obligations at the time of filing:
| Funded Debt | Maturity | Principal Amount Outstanding |
| Prepetition ABL Facility | December 2019 | $296.3 million |
| Prepetition Term Loan Facility | March 2020 | $424.2 million |
| First Out Loans | March 2020 | $14.0 million |
| New FTF Inc. Note | December 2017 | $18.75 million |
| Catterton Notes – March 9, 2017 | June 2020 | $2.5 million |
| Catterton Notes -February 9, 2017 | June 2020 | $5.0 million |
|
| Total | $760.77 million |
DIP/Cash Collateral Motion
The Debtors have requested authority for $364.7 million in debtor-in-possession financing, consisting of a $300 million senior secured superpriority asset based loan ABL facility and $64.7 million (including up to $50 million in new money) priming second-lien secured delayed-draw term loan facility (together, the “DIP” facilities), in addition to the consensual use of cash collateral. The DIP facilities, which are being provided in connection with a restructuring support agreement with certain of the Debtors’ prepetition term loan lenders and other stakeholders, will provide the Debtors with sufficient liquidity to stabilize and fund the Debtors’ operations during these chapter 11 cases.
Other Significant First Day Motions
The Debtors filings do not provide a current pay out or an estimate of a distribution to the unsecured creditors.
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 2,000 employees throughout locations in the United States and Canada, approximately 515 of which are salaried individuals on a full-time or part-time basis, and approximately 1,485 of which are paid hourly on either a full-time or part-time basis. None of the employees are represented by a union or collective bargaining unit. In addition to the employees, the Debtors also regularly and continuously use the services of independent contractors to complete discrete projects, as well as temporary workers sourced periodically from various staffing agencies to fulfill certain duties on a short-term basis. In addition to the employees, the Debtors have historically used approximately 500 independent contractors and thirteen (13) temporary staffing agencies, although this number fluctuates based on the Debtors’ specific needs at any given time.
The Debtors seek authority to pay the following prepetition amounts owed on account of the employee compensation and benefits:
| Employee Obligation | Interim Amount | Final Amount |
| Unpaid Wages | $2,000,000 | $2,000,000 |
| Unpaid Contractor Amounts | $1,250,000 | $2,150,000 |
| Unpaid Temp Agency Amounts | $1,100,000 | $2,400,000 |
| Deductions | $220,000 | $220,000 |
| Unpaid Payroll Taxes | $1,920,000 | $1,920,000 |
| Payroll Fees | $0 | $0 |
| Expense Reimbursements | $50,000 | $50,000 |
| Health Insurance Programs | $194,000 | $194,500 |
| Life and AD&D Insurance | $6,000 | $6,000 |
| Disability Benefits | $23,000 | $23,000 |
| Workers’ Compensation | $0 | $905,000 |
| 401(k) Plan | $350,000 | $350,000 |
| Paid Leave | $0 | $0 |
| Other Benefit Programs | $0 | $0 |
| Total | $7,113,500 | $10,218,000 |
As of the Petition Date,the Debtors estimate that the total amount outstanding on account of the employee compensation and benefits is approximately $10.22 million. The Debtors do not believe that any employee is owed prepetition employee compensation in excess of $12,850.
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 and the aggregate annual premium for the insurance policies is approximately $1.3 million, plus applicable taxes and surcharges.
The Debtors pay an approximate annualized gross premium of the following: Automobile policy coverage in the amount of $278,007; business travel accident insurance in the amount of $3,400; commercial general liability insurance in the amount of $70,907; commercial general liability – Canada policy in the amount of $2,482; cyber & technology liability insurance in the amount of $50,500; D&O excess difference in conditions insurance in the amount of $5,000; difference in conditions – California earthquake policy in the amount of $34,200; excess liability insurance in the amount of $32,000; foreign insurance policy with Zurich International Insurance Co in the amount of $50,051; management liability insurance in the amount of $88,303; property insurance in the amount of $108,800; stock throughput policy in the amount of $409,964; and an umbrella policy in the amount of $121,000.
Customer Programs Motion
The Debtors seek authority to maintain and administer their existing customer-related programs (collectively, the “Customer Programs”) in the ordinary course of business and in a manner consistent with past practice, and honor prepetition obligations related such as their incentive discounts upfront to entice customers to enter into a rental services agreement. In contrast, the Debtors provide volume discounts to incentivize customer spending to increase rental volume. Volume discounts increase based on the type of rental equipment utilized by a customer and the total cost of the project. For example, a customer would receive a higher volume discount if they rented camera, LED, and lighting equipment for an ongoing scripted television series at a total net rental cost of $100,000 than if they rented just camera equipment for a single broadcast show for a total net rental cost of $25,000. The discounts generate higher rental volume and help the Debtors develop and maintain a broader customer base. The Debtors periodically offer referral discounts in exchange for customers referring the Debtors as an exclusive vendor to the customer’s other brands or stakeholders.
Critical Vendor Motion
The Debtors are seeking authority to pay certain essential critical trade vendors and service providers. The Debtors assert in their motion that if the critical vendors are not paid, it will be detrimental to the Debtors’ business operations. The Debtors seek authorization to pay critical vendors in the aggregate in an amount not to exceed $12.7 million pursuant to the interim order and, in an amount not to exceed $14.0 million pursuant to the final order. A second day hearing on the motion and other motions have been scheduled for May 4, 2018 at 1:30 p.m.
Taxes Motion
As of the Petition Date, the Debtors estimate they owe approximately $800,000 in Taxes and Fees relating to the prepetition period and are seeking authority to remit and pay approximately $275,000 of which will become due and owing during the first 25 days following the Petition Date.
The Taxes and Fees are summarized as follows:
Taxes imposed on the sale and use of certain goods and services are approximately $275,000 accrued as of the date of the Petition and $ 50,000 is due within 25 days following the Petition.
Taxes and obligations related to real and personal property holdings are $500,000 accrued as of the date of the Petition and $200,000 is due within 25 days following the Petition.
Taxes required to conduct business in the ordinary course and fees related to compliance with governmental laws and regulations, registration fees, custom fees, and other fees are $25,000 accrued as of the date of the Petition and $ 25,000 is due within 25 days following the Petition.
Shippers Motion
As of the Petition Date, the Debtors owe approximately $725,000 to the Foreign Vendors on account of prepetition goods and services, are seeking to pay prepetition claims of certain vendors, suppliers and service providers approximately $650,000 of which will become due within the first 25 days of these chapter 11 cases.
As of the Petition Date, the Debtors estimate that there is approximately $4.0 million outstanding on account of claims held by Shippers and Lien Claimants, and are seeking to pay prepetition claims approximately $3.4 million of which will come due in first 25 days following the Petition Date.
The Debtors estimate that approximately $2.5 million on account of claims held by the Shippers have accrued as of the Petition Date, and are seeking to pay approximately $2.1 million of which will become due and owing within the first 25 days after the Petition Date.
The Debtors estimate that approximately $1.5 million on account of claims held by the Lien Claimants have accrued as of the Petition Date, and are seeking to pay approximately$1.3 million of which will come due within the first 25 days following the Petition Date.
The Debtors believe that, as of the Petition Date, they owe approximately $1.0 on account of the 503(b)(9) Claims ,and are seeking authority to pay amounts owing to various domestic vendors who supplied goods to the Debtors within the 20-day period immediately preceding the Petition Date thereby giving rise to claims accorded administrative priority under section 503(b)(9).
The Debtors are only authorized to pay Foreign Vendor Claims up to a maximum aggregate cap of $650,000, shipping claims up to a maximum aggregate cap of $2.1 million, and lien claims up to a maximum aggregate cap of $1.3 million, prior to the second day hearing scheduled for May 4, 2018.
If we can be of service, please contact me.
Rafael X. Zahralddin-Aravena
Commercial Bankruptcy and Commercial Restructuring Chair
Elliott Greenleaf
The I.M. Pei Building
Wilmington, Delaware 19899
Direct: 302-384-9401
Cell: 302-545-2888