Introduction
On August 12, 2019 (the “Petition Date”), Mishti Holdings LLC aka Powell’s Sweet Shoppe, Lolli and Pops, Inc., and Meetha Ventures 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 Theodora Oringher PC, as lead counsel, and Morris, Nichols, Arsht & Tunnell as Delaware counsel. The case has been assigned to the Honorable Christopher S. Sontchi. A hearing on the Debtor’s first day motions was scheduled for August 14, 2019. A meeting to form the unsecured creditor’s committee has been scheduled for August 23, 2019.
Background
Headquartered in San Francisco, California the Debtors are owner-operators of upscale retail candy stores primarily located in shopping malls around the country. The Debtors also operate two standalone stores outside of a mall setting: one in Los Gatos, California and the other in Palm Springs, California.
The Debtors employ approximately 789 employees. Of the current employees, approximately eighty are full-time salaried and 709 are part-time hourly employees. The Debtors also use independent contractors and several staffing agencies to fulfil critical employment needs and to address fluctuations in demand or provide special skills the Debtors need. The number of temporary employees fluctuates at any given time depending upon the Debtors’ needs.
Through various court filings, the Debtors indicate that they have encountered financial difficulty due to the general shift away from brick-and-mortar stores to online channels and the accompanying departure of anchor mall tenants, which have led to a decrease in foot traffic and sales. In addition, the Debtors were forced to file chapter 11 on an emergency basis after they were locked out of approximately ten percent of their leased stores. This created an urgent need to obtain the protection of the Bankruptcy Code.
Financial Condition
As of the Petition Date, the Debtors have no secured debt. Lolli and Pops, Inc. is the borrower under an $8 million unsecured line of credit with First Republic Bank (“FRB”) of which $7 million is outstanding. The Debtors are also a party to a note related to the purchase of the Los Gatos, California store that has a remaining principal balance of $40,000.
DIP Financing Motion
The Debtors are seeking authority to enter into a Debtor-in-Possession facility with Paxion Capital, L.P. The Debtors are requesting a senior secured super-priority debtor-in-possession facility in an amount of $10 million, of which $3 million is on an interim basis. An interim order was entered on August 14, 2019.
Other Significant First Day Motions
Critical Vendor Motion
The Debtors depend on third party shipping vendors to transport goods, packaging, and supplies to each of their sixty-nine locations from a large number of suppliers. The Debtors accordingly use the services of reputable common carriers, dedicated carriers, consolidators and parcel carriers, and warehousemen to store goods (collectively, the “Critical Vendors”). According to the Debtors, failing to pay the Critical Vendors could result in costly delays and disruption to the Debtors’ businesses and otherwise diminish the value of the Debtors’ estates. The Debtors are seeking to pay Critical Vendors in the amount not to exceed $100,000. An interim order was entered on August 14, 2019.
Wages and Benefits Motion
As of the Petition Date, the Debtors employ approximately 789 individuals. The Debtors seek interim authority to pay certain employee obligations and maintain and continue employee benefits programs and schedule a final hearing on the motion in an aggregate interim amount not to exceed $435,000.00. The Debtors assert that no employee will be paid more than the $13,650, the prepetition wages and benefits limit. An interim order was entered on August 14, 2019.
Taxes and Fees Motion
As of the Petition Date, the Debtors believe that they are generally current on their taxes and fees. The Debtors estimate that as of the Petition Date, however, they have accrued up to $200,000 of unpaid taxes and fees that will be due and payable in the ordinary course within the first twenty-one days of these chapter 11 cases. An interim order was entered on August 14, 2019, authorizing the Debtors on an interim basis to pay the taxes and fees arising prior to the Petition Date in an aggregate amount not to exceed $200,000.
Customer Programs Motion
The Debtors are seeking authority to continue, maintain, and to pay pre-petition obligations related to their prepetition customer programs which include refund, exchange, honouring gift cards, promotional sales, and credit card programs. In the motion, the Debtors argue that the success of the Debtors’ business depends upon the loyalty of their customers and request authority to pay as needed to preserve their customer programs. An interim order was entered on August 14, 2019.