Introduction
On August 5, 2019 (the “Petition Date”), iPic-Gold Class Entertainment, LLC; iPic Entertainment Inc.; iPic Gold Class Holdings LLC; iPic Media, LC; iPic Texas, LLC; and Delray Beach Holdings, 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 Debtors are represented by Pachulski Stang Ziehl & Jones LLP. The case has been assigned to the Honorable Laurie Selber Silverstein. A hearing on the Debtors’ first day motions was held on August 6, 2019. A meeting to form the unsecured creditor’s committee has not been scheduled.
Background
The Debtors are a leading provider of polished-casual dining in a luxury theatre auditorium environment. The Debtors are one of the largest combined movie theatre and restaurant entertainment destinations with locations that provide a luxurious movie-going experience at an affordable price. The Debtors provide customers with high-quality, chef-driven culinary and mixology in unique destinations that include premium movie theatres, restaurants and lounges. In addition to their restaurant service, the Debtors provide customers with their iPic express menu, which is a chef-driven menu from the Debtors’ in-house and guest chefs prepared to order and which customers may either carry directly into the cinema or have delivered to them in their theatre seats.
The Debtors currently operate 123 screens at sixteen locations in nine states, with an additional two locations under constructions, and have executed leases for an additional nine sites. In addition, the Debtors applied for licenses to operate theatres in Saudi Arabia.
The Debtors were formerly the only company nationwide that built luxury cinemas with recliner seats that offered restaurant-quality food and drinks. Other theatres took notice and began converting their existing theatres or building new locations with reclining seats. Even though the Debtors’ competitors’ overall experience did not compare to that of the Debtors, the availability of reclining seats used by competitors at a lower consumer price point proved to be a challenge, especially compared to the premium seats in the Debtors’ theatres, which did not recline or include tableside service. This decline slowed the Debtors’ anticipated same-store sale growth.
Rising construction costs also negatively impacted the buildout of new locations. The Debtors’ construction costs increased significantly from 2010 to 2019 due to rising construction costs nationally. Additionally, the Debtors were negatively impacted by tightened liquidity due to the delays in the funding of their construction projects. Over time, the proportion of funding from the Debtors’ prepetition loan agreement allocated towards construction decreased.
The Debtors engaged an investment banker to market the Debtors in order to effectuate either a recapitalization or sale of the Debtors. The Debtors intend to continue their marketing efforts with prospective purchasers and hopefully structure a recapitalization through a plan or sale.
Financial Condition
As of the Petition Date, the Debtors had approximately $205 million in outstanding secured principal obligations.
Motion for DIP Financing and/or Cash Collateral Motion
The Debtors are seeking authority to consummate a DIP facility with the DIP lenders consisting of new revolving loans in an amount up to $16 million. The proceeds of the DIP facility will be used to pay post-petition operating expenses and other working capital requirements, costs and expenses incurred in administering the chapter 11 cases, and interest and fees (including professional fees and expenses) due under the DIP loan documents. The DIP Facility provides the estates with the best economic terms available and provides the Debtors with adequate liquidity to maintain operations in the ordinary course of business. The DIP lenders are the Teachers’ Retirement System of Alabama and the Employees’ Retirement System of Alabama.
An interim order approving the motion was entered by the Court on August 6, 2019. A hearing to consider entry of a final order has been scheduled for September 11, 2019, at 11:00 a.m.
Significant First Day Motions
Critical Vendors Motion
The Debtors are seeking authorization to pay certain prepetition claims of certain essential vendors and service providers in an amount not to exceed $3,150,000. The Debtors’ critical vendors are various movie distributors and a network of other vendors and service providers.
An interim order approving the motion was entered by the Court on August 6, 2019. A hearing to consider entry of a final order has been scheduled for September 11, 2019, at 11:00 a.m.
Wages and Benefits Motion
The Debtors are seeking authorization to pay and honour any prepetition obligations to employees and continue to honour ongoing obligations in the ordinary course business. The Debtors will not make any payment to or on behalf of any employee with respect to employee compensation that will exceed the statutory cap of $13,650. As of the Petition Date, the Debtors employed approximately 240 full time and 1,770 part-time employees.
An interim order approving the motion was entered by the Court on August 6, 2019. A hearing to consider entry of a final order has been scheduled for September 11, 2019, at 11:00 a.m.
Insurance Programs Motion
The Debtors seek authority to maintain and renew existing insurance policies and pay all policy premiums and brokers’ fees arising in connection therewith, continue insurance premium financing programs and pay insurance premium obligations arising thereunder. The Debtors are parties to three premium funding agreements with Premium Funding Associates, Inc. and AFCO Credit Corporation. The Debtors believe that they have made all of the payments due to Premium Funding Associates, Inc. for the two PFAs. Under the AFCO PFA, the Debtors are required to make ten monthly instalment payments with the last payment due on December 1, 2019.
An interim order approving the motion was entered by the Court on August 6, 2019. A hearing to consider entry of a final order has been scheduled for September 11, 2019, at 11:00 a.m.
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. As of the Petition Date, the Debtors estimate that they owe approximately $1,670,000 in unremitted taxes and fees. The Debtors seek authority to pay all prepetition taxes and fees in the ordinary course of business in an amount up to $2,000,000.
An interim order approving the motion was entered by the Court on August 6, 2019. A hearing to consider entry of a final order has been scheduled for September 11, 2019, at 11:00 a.m.
Customer Programs Motion
The Debtors are seeking authorization to honour prepetition customer programs in the ordinary course of business. The customer programs include gift cards, membership rewards and employee discounts. As of the Petition Date, the Debtors had approximately $1,970,000 worth of outstanding gift cards.
An interim order approving the motion was entered by the Court on August 6, 2019. A hearing to consider entry of a final order has been scheduled for September 11, 2019, at 11:00 a.m.
PACA/PASA Motion
The Debtors seek authorization to pay, up to a cap of $1,350,000 for claims arising under the Perishable Agricultural Commodities Act of 1930 (“PACA”) to PACA vendors and the Packers and Stockyards Act (“PASA”) to PASA vendors. The Debtors state that any delay in satisfying amounts owed to PACA Vendors and PASA vendors could adversely affect the Debtors’ ability to obtain the necessary fruits and vegetables required to produce the Debtors’ food products. The Debtors’ requested relief affects only the timing of the allowed PACA claims and PASA claims payment and will not prejudice the recovery of other creditors.
An interim order approving the motion was entered by the Court on August 6, 2019. A hearing to consider entry of a final order has been scheduled for September 11, 2019, at 11:00 a.m.