Crumbs Bake Shop $CRMBQ bankruptcy update: Stalking horse bid details

Disclosure: I am short CRMBQ and I am a day-trader. I may close my short position or go long at any time. I am not a bankruptcy expert. This post is for informational purposes only.

 

Below is a copy of the docket in the Crumbs Bake Shop Inc (CRMBQ):

 

14-24287-MBK Crumbs Bake Shop, Inc.
Case type: bk Chapter: 11 Asset: Yes Vol: Judge: Michael B. Kaplan
Date filed: 07/11/2014 Date of last filing: 07/14/2014 
 

 

Doc.
No.
Dates Description
Filed & Entered: 07/11/2014
Docket Text Case Assigned
Filed & Entered: 07/11/2014
Docket Text Credit Card/Debit Card Payment
1
Filed & Entered: 07/11/2014
Docket Text Voluntary Petition (Chapter 11)
2
Filed & Entered: 07/11/2014
Docket Text Motion to Extend Time
3
Filed & Entered: 07/11/2014
Docket Text Motion for Joint Administration
4
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
5
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
6
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
7
Filed & Entered: 07/11/2014
Docket Text Motion to Retain Claims and Noticing Agent
8
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
9
Filed & Entered: 07/11/2014
Docket Text Motion to Reject
10
Filed & Entered: 07/11/2014
Docket Text Motion (Generic)
11
Filed & Entered: 07/11/2014
Docket Text Support
12
Filed & Entered: 07/11/2014
Docket Text Application for Designation as Complex Chapter 11 Case
13
Filed & Entered: 07/11/2014
Docket Text Application for Expedited Consideration of First Day Matters
15
Filed: 07/11/2014
Entered: 07/14/2014
Docket Text Notice of Missing Documents
14
Filed & Entered: 07/13/2014
Docket Text Notice of Appearance and Request
Filed & Entered: 07/14/2014
Docket Text Remark
16
Filed & Entered: 07/14/2014
Docket Text Shorten Time
17
Filed & Entered: 07/14/2014
Docket Text Amended Order (Generic)
18
Filed & Entered: 07/14/2014
Docket Text Notice of Appearance and Request
19
Filed & Entered: 07/14/2014
Docket Text Notice of Appearance and Request
20
Filed & Entered: 07/14/2014
Docket Text Notice of Appearance and Request
21
Filed & Entered: 07/14/2014
Docket Text Application to Appear Pro Hac Vice
22
Filed & Entered: 07/14/2014
Docket Text Motion (Generic)
23
Filed & Entered: 07/14/2014
Docket Text Application to Shorten Time
24
Filed & Entered: 07/14/2014
Docket Text Application to Appear Pro Hac Vice

Document #22 from yesterday includes the details of the Stalking Horse bid for Crumbs Bakeshop. Below are copies of all the documents related to that motion (all files are PDFs)

22
22-1
22-2
22-3
22-4

The actual stalking horse bid is in #22-2. Below are some of the relevant details:

ARTICLE III
CONSIDERATION; ADJUSTMENT
3.1 Consideration.
(a) The aggregate consideration for the Purchased Assets (the
“Purchase Price”) will consist of (i) an amount equal to and payable in the form of a credit bid of
the full amount of the obligations then outstanding under the DIP Credit Agreement and the Pre-
Petition Senior Secured Loan (such amount as may be increased pursuant to Section 3.1(b), the
“Credit Bid Amount”); and (ii) the assumption by Purchaser of the Assumed Liabilities.
(b) For the avoidance of doubt, at any time, and from time to time,
during the Auction, Purchaser may increase the Purchase Price by paying additional cash
consideration.

Note that the consideration does not include any payment to common shareholders of Crumbs Bake Shop.

Okay, so what liabilities are being assumed?

2.3 Assumption of Liabilities. On the terms and subject to the conditions set
forth in this Agreement, at the Closing, or in connection with the Designation Rights, at such later
date as Purchaser assumes any Assumed Contract (the “Assumption Date”) Purchaser will assume,
effective as of the Closing or the Assumption Date, and will timely perform and discharge in
accordance with their respective terms, the following Liabilities of Sellers existing as of the Closing
Date or the Assumption Date (collectively, the “Assumed Liabilities”):
(a) All Liabilities of Sellers under the Assumed Contracts and the
other Purchased Assets that arise on or after the Closing Date or the Assumption Date, as the case
may be;
(b) Any Cure Costs that Purchaser is required to pay pursuant to
(c) Unpaid Administrative Expenses (other than those Administrative
Expenses associated with Sellers’ Professionals) in an aggregate amount up to $150,000, but only
to the extent such unpaid Administrative Expenses (other than those Administrative Expenses
associated with Sellers’ Professionals) exceed the amount of available cash and cash equivalents
on the Sellers’ balance sheet; and
(d) Any Transfer Taxes as provided in Section 10.1.

2.4 Excluded Liabilities. Notwithstanding anything to the contrary set forth
herein, Purchaser will not assume and will be deemed not to have assumed, and Sellers will remain
liable with respect to, any and all Liabilities of Sellers arising out of, relating to or otherwise in
respect of the Business, the Employees, or the Purchased Assets prior to the Closing Date, and all
other Liabilities of Sellers, at any time existing or asserted, whether or not accrued, fixed, contingent
or otherwise, whether known or unknown, and whether or not recorded on the books and records of
Sellers or any of their Affiliates other than the Assumed Liabilities, (collectively, the “Excluded
Liabilities”). Purchaser will not be obligated to assume, and does not assume, and hereby disclaims
all of the Excluded Liabilities.

Also note that the purchaser is not assuming all the liabilities — some liabilities are excluded and will be retained by the empty shell of Crumbs Bake Shop (what shareholders own), leaving it with liabilities and no assets.

Now keep in mind that the stalking horse bid is an initial bid and the lowest price the assets can fetch. It is quite possible that another bidder could come in and bid enough for the assets that there would be some recovery for commmon shareholders. However, keep in mind that even this bid was a last-ditch, last-minute bid. The company was looking to liquidate in Chapter 7 after having engaged a firm to seek strategic buyers and being rebuffed by all of them — and this was a search not for buyers of the equity but for debtor-in-possession financing of a prepackaged bankruptcy (quote below from item 10-1).

14. Prior to the Filing Date, the Debtors retained GlassRatner Advisory & Capital
Group (“GlassRatner”) to, among other things, critically examine the Debtors’ business
operations and funding requirements. GlassRatner initiated a broad pre-petition marketing
process to solicit interest from potential investors. That dual track process targeted potential
investors that would (a) seek to acquire the Debtors’ business and/or (b) provide the Debtors
with capital to fund the ongoing operations. In consultation with the Debtors, GlassRatner
determined that only strategic investors or financial sponsors with an investment platform in the
specialty food sector could provide a viable solution given the critical state of the Debtors’
business. As such, only those parties that met that specific criteria were contacted.
15. Together with the Debtors, GlassRatner approached a total of 127 distinct parties
through 149 individual telephone calls. Of those parties contacted, 58 parties chose to receive
the “Investment Teaser” and/or requested additional information in order to evaluate a potential
transaction. All of the prospective investors contacted by GlassRatner, however, elected to pass
on the financing opportunity given: (a) concerns about the Debtors’ business operations; (b) the
Debtors’ financial condition; (c) recent results of operation and limited unencumbered assets;
and (d) the uncertainty around ultimate repayment. As of the Filing Date, GlassRatner’s
marketing effort did not result in a formal DIP loan proposal from any other third party.

Given the lack of interest then and the fact that Fischer/Lemonis entitites are already owed approximately $5 million by Crumbs Bake Shop and thus can afford to bid far more than other potential buyers (because $5 million of the purchase price is paying themselves). Couple that with the due diligence fee / breakup fee.

(b) If (i) this Agreement is terminated pursuant to Section 4.4(c) by
Purchaser or pursuant to Section 4.4(f), and (ii) a Competing Transaction is consummated, then
Sellers will pay to Purchaser in cash (A) an amount (the “Break-Up Fee”) equal to 3% of the
Purchase Price and (B) the Expense Reimbursement.

Assuming a $20 million purchase price, the breakup fee would be $700,000. And such a price is about equal to the company’s total liabilities so would result in little or no money being paid to holders of common equity in CRMBQ. Also, keep in mind that Crumbs continues to hemorrhage money: the net loss attributable to common stockholders in the first quarter of 2014 was $3,795,970.

The bottom line is that I think there is a very, very high probability that the common equity is worthless and shareholders get nothing. I expect the stock to fade slowly over the next few days to weeks.

[Edit 2014-7-17]: I completely misread the bid: the stalking horse bid is only for the amount of money owed to Lemonis Fischer Acquisition including the $1m in DIP financing they are offering, for a total bid of about $6.5 million. This would leave all other parties owed by Crumbs with little hope for recovery. Consequently equity holders are almost guaranteed to get nothing.

The roughly $6.5 million on the table is a “credit bid,” or a pledge of about $5.5 million in money already owed to Fischer as part of a loan it made to Crumbs this year, as well as money it will be owed as part of the bankruptcy loan, Crumbs’ lawyer Michael Sirota said in an interview.

Mr. Sirota said in court that the sale is on a tight timeline because the company will run out of money if the transaction doesn’t close around the end of next month.

Mr. Sirota, of Cole, Schotz, Meisel, Forman & Leonard, P.A., said after the hearing that a competing bidder would probably have to offer about $7 million to top what already is on the table. That price takes into account a 3% breakup fee that would have to be paid to Fischer and Mr. Lemonis.

Above quote from yesterday’s WSJ article.

Disclosure: [Update 2014-7-17: I am no longer short CRMBQ but would reshort if I could find the shares] I am short CRMBQ and I am a day-trader. I may close my short position, short more, or go long at any time. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

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