On March 31, 2020 (the “Petition Date“), United States of America Rugby Football Union, Ltd. (“USA Rugby”, or the “Debtor”) filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
The Debtor is represented by Billion Law as lead counsel. The case has been assigned to the Honorable Brendan Linehan Shannon. A hearing on the Debtors’ first day motions has not yet been scheduled.
Founded in 1975, the Debtor is the national governing body for the sport of rugby in the United States and a full sport member of the United States Olympic and Paralympic Committee. They are also a member of World Rugby. The Debtor oversees four national teams, multiple collegiate and high school All-American sides, and an emerging Olympic development pathway for elite athletes. Headquartered in Lafayette, Colorado, the Debtor has over 120,000 active members. The Debtor enforces World Rugby’s rules in U.S. tournaments, and organizes and sanctions international competition. USA Rugby fields the U.S. national teams that participate in international competitions. According to the Debtors’ filed affidavit in support of emergency first-day motions (“Affidavit”), when organizing rugby games, the Debtor also provides insurance coverage for the participants and organizers, specifically member-accident coverage which insures against injuries during the course of play and which allows venues to host rugby events (See Ross Young Affidavit in Support).
According to the Affidavit, the Debtor’s financial hardships came to a head with the World Cup 7’s Championship in San Francisco in 2018, due to a series of cost-overruns and revenue shortfalls that resulted in the Debtor being unable to afford to put on the event or finance continued preparations. After a series of negotiations, World Rugby provided $4.4 million in unsecured financing in an effort to shore up the Debtor’s (and therefore the Championship’s) finances. These events resulted in a change in management and substantial board turnover. In addition, the Debtor was facing a $40 million breach-of-contract suit initiated by United World Sports, LLC (“UWS”) over a contract dispute involving tournament rights, including revenue streams from television, social media, and advertising, in addition to the stadium revenue. USA Rugby also suffered overruns associated with the men’s national 15s team’s preparation for the World Cup in 2019.
On the verge of insolvency, USA Rugby’s board initiated discussions with World Rugby, which supplied $1 million to continue operations. At the same time, the Debtor undertook major cost-cutting measures including layoffs, the freezing of credit lines, and reductions in corporate travel. These measures were to have allowed the Debtor to continue operations until May 2020, at which time the plan was to seek recapitalization at the World Rugby Expo. However, the COVID-19 outbreak made this impracticable as the Debtor suspended sanctioned competition and rugby activities for a thirty-day period on March 13, and then indefinitely on March 20, 2020. It is noted in the Affidavit that the Debtor will receive some form of financing from World Rugby that allows it to continue in chapter 11 and emerge from bankruptcy, but the Debtors have yet to file a motion to request approval of new financing from World Rugby.
The Debtor’s assets currently total $1,126,894.69; liabilities total over $45 million. The Debtor’s sole secured creditor is JPMorgan Chase Bank, N.A. (“JPMC”), which is owed $467,820. The Debtor’s largest unsecured creditor is United World Sports, with an unliquidated claim of over $40 million. World Rugby is owed $3.6 million in unpaid loans provided on an unsecured basis. In addition, the Debtor has unsecured debt in the form of credit cards, legal counsel bills, potential liability for Olympic tickets, and various trade and vendor debts.
As of the Petition Date, the Debtor does not have sufficient cash to meet its immediate needs without a Court order allowing it to use its cash, as JPMC has a lien over all the Debtor’s assets, and JPMC is adequately protected. However, the Debtor’s additional debt far exceeds its available cash, including the amounts owed to World Rugby, expenses, and potential liability related to on-going litigation with UWS.
Given the suspension of rugby due to COVID-19, the dues-related revenue the Debtor expected will not be forthcoming and the tournaments it had planned have been canceled. The Debtor has lost its revenue streams and will need to access additional funding to preserve the value of business operations. In consultation with its advisors, the Debtor has prepared an eight-week budget to support its request to use cash, over which JPMC has a lien. The Debtor notes in the motion that World Rugby has proposed to provide debtor-in-possession financing to finance ongoing operations and the costs of the chapter 11, but no such motion has yet been filed. It appears that the Debtor is asking to use cash on hand pursuant to its budget until such time as financing is approved from World Rugby. To protect JPMC and prevent an objection to the use of available cash, the Debtors have proposed to reserve $467,820 to protect JPMC’s interest. The relief requested will be subject to a final order at a hearing to be set pursuant to the Court’s availability, in the near future.
The Debtor procures insurance for general operations, including workers’ compensation, commercial property, general, travel, and directors’ and officers’ policies. The Debtor also procures insurance which their members rely on to conduct rugby events, which they allege forms an integral part of the services that they provide to their members.
The Debtor is insured under approximately eleven insurance policies. As of the Petition Date, the Debtor does not believe that they owe any amounts with respect to the policies. However, the Debtor argues that their ability to continue the policies, and enter into new ones as necessary, is essential to preserving the value of the Debtor’s business. The Debtor also argues that insurance is mandated in many instances by regulations and laws that govern the Debtor’s commercial activities. The Debtor seeks authorization to continue their insurance policies and satisfy any prepetition or postpetition obligations related to them in the ordinary course of business, and to renew, amend, supplement, extend, or purchase policies to the extent the Debtor determines that such action is in the best interest of their estate.
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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