January 18, 2019 – The Court hearing the Shopko Stores case issued an order authorizing (i) debtor-in-possession (“DIP”) financing consisting of (a) a senior secured superpriority revolving credit facility up to the aggregate principal amount of up to $400mn, (b) a senior secured first-in-last-out revolving credit facility of up to $30mn and (c) a senior secured term loan of up to $49m and (ii) use certain pre-petition collateral, including the cash collateral of prepetition lenders [Docket No. 89]. The term loans noted at (b) and (c) above are comprised of amounts rolled-up from prepetition borrowings as is approximately $289mn of the $400mn revolving credit facility.
As previously cited from the DIP motion [Docket No. 35], “The DIP Facility provides the Debtors with the funding needed to operate and maintain their business, to pay necessary expenses during the pendency of their Chapter 11 cases, and to pursue what is currently the best and only path to the continuation of their business as a going concern. Indeed, the proposed DIP Facility works in tandem with the Debtors’ proposed Chapter 11 plan (the ‘Plan’), and the related bidding procedures filed contemporaneously herewith, as all are designed to facilitate a process that will maximize value, the likelihood of a going concern transaction for the benefit of stakeholders enterprise-wide, including thousands of jobs, and the confirmation of the Plan. Indeed, if the Debtors are able to secure an acceptable Plan sponsor, certain of the Debtors’ first-out secured lenders, led by the Agent, have indicated that they would be willing to provide an exit facility that will satisfy all remaining Post-Petition ABL Obligations and Post-Petition Term Loan B Obligations.
Absent the DIP Facility, on the terms negotiated, the Debtors would run out of cash and be forced to liquidate their business, with all stakeholders receiving lesser recoveries than they would in a reorganization. Failure to obtain the financing provided by the DIP Facility would also result in future harm to the Debtors’ vendors (through loss of future orders), landlords (through loss of a stable tenant), and thousands of employees (through loss of their employer). The use of Cash Collateral alone would be insufficient to meet the Debtors’ post-petition liquidity needs. The Debtors therefore respectfully request approval of the DIP Facility.”
Key Terms of the DIP Facility:
- Borrower(s): ShopKo Properties, LLC Penn-Daniels, LLC ShopKo Stores Operating Co., LLC ShopKo Holding Company, LLC ShopKo Optical Manufacturing, LLC Specialty Retail Shops Holding Corp. ShopKo Institutional Care Services Co., LLC, Retained R/E SPE, LLC, Pamida Stores Operating Co., LLC
- Guarantor(s): ShopKo Finance, LLC SVS Trucking, LLC Shopko Gift Card Co., LLC, Pamida Transportation, LLC, Place’s Associates’ Expansion, LLC
- Lenders: Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, a national banking association as Agent and Term Loan B Agent, Shopko Note Holding, LLC, successor to Spirit Realty L.P., as Term Loan B-1 Agent, and each lender from time to time party to the Loan Agreement.
- Interest Rates:
- Revolving Loans A: a rate equal to the then Applicable Margin for Prime Rate Loans on a per annum basis plus the Prime Rate
- Revolving Loans A-1: a rate equal to the then Applicable Margin for Prime Rate Loans on a per annum basis plus the Prime Rate
- Term Loans B: a rate equal to the then Applicable Margin for Prime Rate Loans on a per annum basis plus the Prime Rate
- Term Loans B-1: a rate equal to fourteen (14.00%) percent per annum
- “Applicable Margin” shall mean, at any time, as to the Interest Rate for Prime Rate Loans the applicable percentage (on a per annum basis): (i) Applicable Prime Rate Margin for Revolving Loans A: 2.75%, (ii) Applicable Prime Rate Margin for Revolving Loans A-1: 4.00% and (iii) Applicable Prime Rate Margin for Term Loans B: 9.50%
- Use of DIP Facility and Cash Collateral: Shall only be used by Debtors for the working capital and general corporate purposes of Borrowers, including allowed administrative expenses incurred during the Chapter 11 Cases
Prepetition Capital Structure
As of the Petition Date, the Debtors had approximately $403mn in total funded debt obligations, consisting of approximately $289mn and $30mn in two senior secured asset-based revolving loans (the “Revolving Loans A” and “Revolving Loans A-1,” respectively), $49mn outstanding under an asset-based term loan (the “Term Loan B”), and $34.4mn outstanding under another asset-based term loan (the “Term Loan B-1”).
The following table summarizes the Debtors’ prepetition capital structure:
- Revolving Loans A (due June 2020): $289,228,220 outstanding as at Petition date
- Revolving Loans A-1 (due June 2020): $30,000,000 outstanding as at Petition date
- Term Loan B (due June 2020): $49,055,312 outstanding as at Petition date
- Term Loan B-1 (due June 2020): $34,416,375 outstanding as at Petition date
- Total Funded Debt: $402,699,907
A final hearing on the motion is scheduled for February 7, 2019, with objections due by February 4, 2019.