court supervised sales process Archives - Ira SmithTrustee & Receiver Inc.

Stalking horse credit bid: Introduction

In last week’s vlog, “STALKING HORSE ASSET PURCHASE AGREEMENT: THE WEINSTEIN COMPANY GALLOPS INTO A COURT SUPERVISED SALES PROCESS“, I described what a stalking horse asset purchase agreement is. I also defined and described the proposed stalking horse credit bid process of The Weinstein Company. That process was approved last Friday by a Delaware bankruptcy judge. The Court delayed the court sales auction by a couple of business days to May 4, 2018.

Stalking horse credit bid: Our earlier case studies

Over the last few weeks, I have provided some case studies from our files for both personal and corporate insolvency matters. As a refresher, these case study vlogs are:

Stalking horse credit bid: Our stalking horse sales process case study

This is the last vlog along our case study theme. The purpose is to show the decision making that the Court goes through in being asked to approve a stalking horse credit bid and a stalking horse sales process in a corporate insolvency file.

We were Court-appointed as Receiver and Manager of a club operating a golf course, restaurant and party function business. The first secured creditor filed its motion to appoint us. We were appointed very close to Christmas that year. Obviously, the golf course was not operating at the time of our appointment. The food and beverage facilities only had one remaining Christmas party and the annual club New Year’s party. No parties were booked yet into the New Year.

We did the normal things a Receiver does such as:

taking physical possession of the premises and the books and records;
identifying if there were any assets located off premises; and
arranging for property and liability insurance.

We were able to use the time to understand the business and the nature and extent of the assets.

There was already a purchaser ready to give an offer to purchase the Receiver’s right, title and interest in the operating assets comprising the club’s businesses. We arranged for an appraisal of the assets and business. We received and reviewed the appraisal. The secured creditor told us the form of offer they would support.

Armed with the appraisal information and the secured creditor information, we entered into a conversation with the potential purchaser. The amount this purchaser told us it was willing to pay was far more than appraised value and above the minimum threshold for acceptance from the secured creditor.

Stalking horse credit bid: Our stalking horse offer

We decided that a stalking horse bid process would be ideal. We doubted that any party would bid higher than the value this potential purchaser was discussing. It made sense to also have the court supervised sales process completed prior to April, so that it would be the purchaser opening up and preparing the course for play and running the food and beverage business, rather than the Court appointed Receiver.

The potential purchaser agreed to become a stalking horse bidder and to the timeline. We and our legal counsel worked with the potential purchaser and its legal counsel to prepare a draft stalking horse asset purchase agreement. The purchase price was the amount this now stalking horse purchaser was always discussing.

Stalking horse credit bid: We galloped off to Court

We filed our motion for approval of our activities to date, requested permission to enter into the proposed stalking horse agreement and sought approval for our proposed stalking horse sales process. The Court had no problem with our activities to date, or the stalking horse agreement, but did not like our truncated stalking horse sales process. We were not able to be in Court until February and we wished to complete the sale by March 31. The Court felt that was not enough time to run a sales process that was fair to all potential bidders. Our legal counsel attempted to persuade the Judge that comparing the appraisal (which the Court saw but our purchaser did not see) and the value of the stalking horse offer, we did not feel that there would be any other bidders.

We could not persuade the Court. The Judge approved everything, but he amended the timeline so that we would run a process that would last at least 5 weeks from the time we ran our advertisement for this business opportunity.

The Court considers various factors when asked to approve a receivership or bankruptcy sales transaction. The basis for this comes from a 1991 Court of Appeal for Ontario decision in Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ON CA). In no particular order, the Court is concerned with:

Whether the Receiver has made enough effort to get the best price and has not acted improvidently.
Considering the interests of all parties.
The efficacy and integrity of the process used to get offers.
If there has been unfairness in the working out of the process.

In the Judge’s opinion, a 5 week sales process would ease any concerns he had.

Stalking horse credit bid: The outcome

We amended our sales process in accordance with the Judge’s instructions. We then:

ran the advertisement and issued our preliminary “teaser” sales document to all those that requested it; and
set up our online data room of pertinent business and other information about the assets and business operations.

Anyone who wished to do due diligence signed our confidentiality agreement. Everyone who signed our confidentiality agreement was then provided with a unique password to enter the online data room.

The due diligence period ended and since everyone knows the amount of the stalking horse offer, no other potential bidders submitted an offer. Nobody wanted to bid more.

We went back to Court to tell of the results and obtained Court approval to complete the transaction of the stalking horse bidder whose asset purchase agreement was already approved by the Court.

In the meantime, spring had arrived. We hired the necessary golf course superintendent and other maintenance and operating staff and opened up the golf course. We ran the golf club until the sale was completed near the end of June that same year. In the eyes of the Court fairness was achieved, we operated the golf club and the secured creditor was happy with the result of the sale.

Stalking horse credit bid: Is your business facing financial problems?

This case study shows how we were able to satisfy all stakeholders in a Court supervised sales process, to transfer the assets to a new business, remit funds to the secured creditor on a basis acceptable to them and meet the requirements of the Court.

Is your business facing financial problems? Perhaps your company is in need of a restructuring. The Ira Smith Team can develop a restructuring plan which may or may not include the need to file for bankruptcy protection.

The Ira Smith Trustee & Receiver Inc. Team understands the pain you are going through trying to keep your company alive while trying to negotiate with potential purchasers. We understand that you are playing beat the clock, and the pain and stress you are feeling thinking that you may just run out of time. The bankruptcy protection process can ease this stress and provide a level playing field so that no potential purchaser takes advantage of you.

The Ira Smith Team has a great deal of experience in running a stalking horse stalking horse asset purchase agreement. The stress placed upon you due to your company’s financial challenges is enormous. We understand your pain points. Call the Ira Smith Team today for your free consultation. We can end your pain and put your company back on a healthy profitable path, Starting Over, Starting Now.

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Stalking horse asset purchase agreement: Introduction

In my July 2015 blog, “STALKING HORSE BID: DO YOU REALLY WANT TO STALK YOUR HORSE ANYWAY?”, I defined and described the stalking horse bid process in the Canadian insolvency context. In my November 2017 vlog, “FILING FOR BANKRUPTCY PROTECTION: THE WEINSTEIN COMPANY RETAINS ATTORNEYS FOR POSSIBLE BANKRUPTCY PROTECTION FILING”, I described the (then) financial condition of The Weinstein Company (TWC) and correctly predicted that it would have no choice but to ultimately file for bankruptcy protection. The purpose of today’s vlog is to provide an update on TWC’s bankruptcy protection filing. My expectation that on April 6, 2018, the US Bankruptcy Court will approve a stalking horse asset purchase agreement.

Stalking horse asset purchase agreement: Stalking horse agreement definition

As a refresher, the stalking horse bid process is, an effort by a company to look at the marketplace ahead of an auction. The intent is to make the most of the value of its assets. This is done as part of normally what is a court supervised public auction sale. It is common to being used in a bankruptcy case. stalking horse bidder

Stalking horse asset purchase agreement: How a stalking horse bid works

The insolvent company in bankruptcy protection, canvasses the marketplace. It comes up with what it determines to be, under the circumstances, the best possible offer. The insolvent company and the potential purchaser, enter into a stalking horse asset purchase agreement. The potential purchaser allows its stalking horse bid to go public.

While entering a stalking horse asset purchase agreement, the company can use bidding process protections. An example is breakup charges. This protects the stalking horse bidder prior to the public auction sale. These incentives improve the worth of the offering for the stalking horse buyer. This process may bring about a far better offer before the public auction starts. This greater deal is currently the beginning deal for the public auction. The aim is to produce the best possible offer.

Stalking horse asset purchase agreement: How did the stalking horse offer process get its name?

This type of bidding process gets its name from the use of a stalking horse in hunting. The hunter uses a horse, or a screen made in the shape of a horse. The hunter stays concealed when stalking prey.

The stalking horse bid becomes “the stalking horse”; the “animal” used to attract the “prey”, being other bidders.

The terms of the sales process would show by what minimum amount any other bid must beat the stalking horse bid. That minimum amount would have to be at least the amount of the break fee. The break fee is compensation for stalking horse bidder. It attempts to compensate for due diligence time and costs if they don’t win the deal.

Stalking horse asset purchase agreement: TWC bankruptcy case

In the evening of March 19, 2018, TWC filed for bankruptcy protection in a Delaware Bankruptcy Court. The reasons for the filing were twofold: (i) TWC had canvassed the marketplace and had obtained an offer to purchase its assets by a stalking horse buyer, Lantern Capital; and (ii) to have a Court supervised forum so that both a sale and transfer of the assets can take place and all claimants can make a claim against the resulting cash. TWC announced that anyone subject to a non-disclosure agreement (NDA) was now released. No doubt this will lead to more allegations and claims.

stalking horse asset purchase agreement

Stalking horse asset purchase agreement: The stalking horse purchase agreement

Variety reported that Lantern Capital, a Dallas based private equity firm, entered into the stalking horse asset purchase agreement with TWC. Variety stated Lantern’s bid offers $310 million in cash, plus assuming up to $114.5 million in liabilities connected with TV and film projects, for a total stalking horse bid of $424.5 million.

If approved by the Delaware Bankruptcy Court, this will serve as the floor for other bidders. There is a hearing scheduled for April 6 in Delaware, at which time the Bankruptcy Court is expected to approve this stalking horse bid and the entire stalking horse process. As currently drafted, all other bids must be submitted by April 30. The bids will then be vetted, discussions will take place and TWC will then appear again in Bankruptcy Court to recommend which offer is deemed to be the best and be approved and completed. No further information is available at this time.

Stalking horse asset purchase agreement: Does your company have a buyer but might need a Court-supervised process to finish a sale?

In next week’s vlog, I will provide a case study of how we used a stalking horse asset purchase agreement Bankruptcy Court supervised process to sell the assets of an insolvent company. The successful sale also continued employment for many people.

Is your company facing financial hardship, yet its assets are attractive to multiple potential purchasers? Perhaps you need to be thinking of using bankruptcy protection to maximize the value of the company’s assets through a sale. This process can also continue employment for both you the entrepreneur owner and for many of your current employees.