Introduction
On July 7, 2019 (the “Petition Date”), RUI Holding Corp.; RU Corp.; Restaurants Unlimited, Inc.; and Restaurants Unlimited Texas, Inc. (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 to preserve the value for its stakeholders, including its employees and creditors.
The Debtors are represented by Klehr Harrison Harvey Branzburg LLP. The case has been assigned to the Honorable Laurie Selber Silverstein. A hearing on the Debtors’ first day motions is scheduled for July 9, 2019. A meeting to form the unsecured creditors’ committee has not yet been scheduled.
Background
Based in Seattle, Washington, the Debtors are premier multi-branded restaurant operators for almost fifty years, with locations primarily along the West coast and specific concentration in the Pacific Northwest. The Debtors currently own and operate thirty-five restaurants in six states, including Henry’s Tavern, Stanford’s, and Kincaids. The Debtors’ Chief Restructuring Officer was reported by several articles to have stated in court filings that wage increases in Seattle, San Francisco, and Portland are alleged to have forced the Debtors into bankruptcy.
Financial Condition
As of the Petition Date, the Debtors had approximately $150,000 of cash on hand and lacked access to needed liquidity other than the cash flow from operations. In addition, as of the Petition Date, the Debtors owe various vendors, suppliers, and unsecured trade creditors approximately $7.6 million. By May 2019, liquidity was severely impacted by revisions to lending agreements along with declining trends and continuing increased costs. The Debtors engaged an investment banker to locate investors and continue to market their assets for sale, assist in the evaluation of strategic alternatives, including the sale of the Debtors, refinancing, or other alternatives, such as the closure of additional restaurants.
The Debtors believe that a marketing and sale process through chapter 11 cases is in the best interests of the Debtors’ creditors and will maximize the value of their estates. Additionally, the Debtors have negotiated a DIP financing facility that will allow the Debtors to continue to operate in the normal course, pay landlords and vendors, and have sufficient liquidity to pay the administrative costs, both operational and statutory, required in these chapter 11 cases. The Debtors are seeking to establish a formal sale timeline, which will include an auction process with a goal of entering into an asset purchase agreement with a stalking horse buyer prior to a hearing to approve sale procedures.
Motion for DIP Financing and/or Cash Collateral Motion
The Debtors are seeking authority to obtain a senior secured, super-priority, multi-draw term loan of up to $10,000,000 with Fortress Credit Co. LLC (the “DIP Lenders”). The DIP Lenders agreed to provide $10,000,000 of new money post-petition financing, including $3,250,000 of new money during the interim period and an additional $6,750,000 upon entry of a final order. The Debtors’ ability to use the cash collateral and access additional liquidity through the available DIP facility will support the sale process contemplated.
Significant First Day Motions
Bidding Procedures and Sale Motion
The Debtors are requesting entry of two orders for the authorization and approval of bidding procedures and authorizing the sale or sales of the purchased assets to the successful bidder(s). The Debtors are offering for sale all of their assets associated with the operation of their business. The Debtors’ proposed timeline is to conduct the auction and sale hearing during the week of September 16, 2019, with other related proposed dates as follows:
August 13, 2019 Sale Procedures Objection Deadline
August 20, 2019 Sale Procedures Hearing
August 23, 2019 Mailing Deadline
September 12, 2019 Sale and Contract Objection Deadlines
September 13, 2019 Bid Deadline
September 17, 2019 Auction
September 19, 2019 Sale Hearing
September 26, 2019 Closing Date
The Debtors believe that conducting a sale process for the purchased assets according to this timeline will produce a fair and robust auction and will provide their estates with the best opportunity to maximize the value of the purchased assets.
Taxes and Fees Motion
The Debtors are seeking authority to pay certain prepetition taxes and fees that, in the ordinary course of business, accrued or arose before the Petition Date in an amount not to exceed $1,300,000 on an interim basis and up to $1,550,000 on a final basis.
Wages and Benefits Motion
The Debtors seek authority to pay certain prepetition compensation and reimbursable expenses and continue employee benefits programs. Through the motion, the Debtors are seeking to pay the following amounts on an interim basis: (i) prepetition employee compensation, gross wages and tips: $3,700,000; (ii) withholding obligations: $1,400,000; (iii) payroll processing fees: $15,000; (iv) reimbursable expenses: $50,000; and (v) employee benefits programs: $700,000. As of the Petition Date, the Debtors had approximately 1,885 part-time hourly employees, approximately 168 full-time salaried employees, and fifty salaried employees at the corporate headquarters.
Insurance Programs Motion
The Debtors seek authority to (i) pay their obligations under insurance policies entered into prepetition, (ii) continue to pay certain brokerage fees, (iii) renew, supplement, modify, or purchase insurance coverage in the ordinary course; and (iii) honor the terms of the financing agreements and and pay premiums thereunder. The aggregate annual premium for the insurance policies is approximately $1,200,000. The Debtors are requesting authority to pay any prepetition amounts due in connection with the insurance policies in an aggregate amount up to $350,000 on an interim basis and up to $550,000 on a final basis.
Trade Claimants, PACA/PASA Claimants and Other Vendors Motion
The Debtors are seeking authority to pay prepetition claims of critical vendors, logistics claimants, PACA/PASA claimants and administrative expense claimants in the aggregate amount not to exceed $500,000 on an interim basis and $3.5 million on a final basis. In the ordinary course of business, the Debtors engage a number of providers for certain critical services, inventories, and other supplies the Debtors depend upon to provide services to their customers. In certain circumstances, the Debtors utilize third parties to transport their goods to their locations. In addition, to ensure that the Debtors continue to receive a constant supply of fresh fruits and vegetable post-petition, the Debtors are seeking authority to continue to pay claims arising under the Perishable Agricultural Commodities Act of 1930.
Customer Programs Motion
The Debtors are seeking authority to continue to administer their gift cards, coupons and sales promotions, discounts and other accommodations programs and to honour any prepetition obligations related thereto. The Debtors estimate that the value of outstanding gift cards is approximately $4.2 million.
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