💥New Chapter 11 Bankruptcy - Meier's Wine Cellars Acquisition LLC ($VWE)💥
Former de-SPAC files for bankruptcy to pursue sale.
On July 24, 2024, CA-based Meier’s Wine Cellars Acquisition LLC (the “company”) and 11 affiliates (the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware (Judge Walrath). “Acquisition,” huh? Weary old pros know that when “acquisition” appears in a distressed company name, there’s a 50/50 chance you can count on some f*ckery. Here? A special purpose acquisition company (“SPAC”), of course! So this SPAC bought some farmland in California criss-crossed with grape vines, and straight to hell it went!
Our story begins in 2000, when Pat Roney and Leslie Rudd bought Girard Winery in California’s Napa Valley. Here’s an interview with Roney from 2020. He was trained as a sommelier, invented wine coolers for Seagrams, and grew the debtors into “one of the most important companies in the industry,” according to the story. In ‘07, Roney and Rudd bought another: Windsor Vineyard, a pioneering “direct to consumer” provider of wine. Rebranding as Vintage Wine Estates, the debtors made 28 additional acquisitions, “developing a diverse portfolio of estates, production centers and intellectual property.” Business lines consist of direct-to-consumer, wholesale, and business-to-business. AGR Partners, a speciality lender firm focused on food and agriculture, bought a minority stake in ‘18 for $75mm. The investment “will help support future winery and brand acquisitions and expansion-related production efficiencies,” is how the press release pitched it. Here is a timeline of their acquisitions. How many of these brands are in your cellar?
The timeline ends in ‘21, you will observe. In that fateful year, Toronto Stock Exchange-listed Bespoke Capital Acquisition Corp. (“BCAP”) entered the picture. BCAP’s sponsor is Bespoke Capital Partners (“Bespoke”). According to its web site, Bespoke was founded in ‘14, offers “a differentiated approach to private equity,” has a “core team of experienced investment professionals and an extensive network of over 75 industry leading Operating Partners.” The operating partners (“OPs”) are responsible for “opportunity identification.” Bespoke claims expertise in “Fitness, Wellness and Healthy Living” and “Hospitality, Travel and Tourism,” among other things; its portfolio, besides the debtors, contains World Gym Taiwan — “the largest health and fitness chain in Taiwan.” So these folks de-SPAC’ed the debtors good and hard. AGR Partners achieved a “partial exit.” The shares were listed on the NASDAQ as VWE. The fine corporate lawyers at Jones Day (Robert Profusek, Joel T. May) represented the company in the de-SPAC transaction; the fine bankruptcy lawyers (Heather Lennox, Carl Black, T. Dan Reynolds, S. Christopher Cundra IV, Alex Sapp, Matthew Milana, Nick Buchta, Isel Perez, Robert Hamilton, Gary Kaplan) now represent the debtors in bankruptcy.
Here’s ⬇️ a one-year chart from right around the time of filing; it’s more distasteful than a rancid glass of wine:
And note the comps: Duckhorn Portfolio Inc. ($NAPA, oh gosh, what a clever ticker) and Willamette Valley Vineyards ($WVVI). There is, as it happens, a considerable industry headwind. But in ‘21, it seemed like a good idea. Why? Oh, the usual. “At the same time the Company was going public, the COVID-19 pandemic created an increased demand for wine,” CEO Seth Kaufman states in his first day declaration. Bored, lonely, alienated, lunatics on Twitter demanding labor camps for the un-vaxxed. Any normal human being would reach for the bottle. Demand peaked at 445mm cases per year, up from an average of 414mm/year.
Did the debtors think peak demand was permanent? Hard to imagine. But the plunge to 377mm cases in ‘23 must have been a shocker. Red wine hangovers are terrible. Was it that? A revival of the Temperance Movement? Did millions take the pledge? Kaufman, just what the hell is going on in these vineyards?
The decreased demand resulted in a surplus of winegrape production in California vineyards, with 375,000 tons of winegrapes going unpicked. This led the State of California to order the corrective removal of thousands of acres of vineyards. Grape growers have torn out or burned acres of vineyards to avoid maintaining unprofitable idle land.
Americans are indeed drinking less wine; younger cohorts apparently prefer weed, believing it healthier. Silicon Valley Bank (yeah, them) discusses those trends and others in their annual report on the state of the wine industry, which makes for uneasy reading if you’re a farmer:
Intriguingly, the cheap, sub-$10 mass-produced wines were hit the worst. Higher priced wines enjoyed an uptick in demand. “Therefore, smaller, premium wineries have fared better in the unpredictable business environment.” Hmm. Inflation, as we know, is taking an ever-larger bite out of the paychecks of lower-income consumers. Is that it? Too broke for that ‘21 Shiraz from VWE brand, Cameron Hughes?
The debtors’ portfolio includes “luxury wines, award-winning wines, everyday wines, inspired classic wines and inventive new vintages that reflect our times.” A vintage that reflects our times? Err, f*ck that, we’ll just have an espresso martini, please! 🍸
In theory, a broad portfolio will hedge against weakness in any one asset. But the decade-long assembling of the portfolio “presented unanticipated challenges.” And now that you’re public, you have to tell us everything. So, (a) integration headaches, (b) performance declines in newly acquired brands, (c) a $139.1mm non-cash impairment charge in ‘23, most of which was attributable to goodwill impairments at the debtors’ wholesale and B2B segments. The discovery of accounting errors and the restatement of financials for the quarters ending (i) Sept. 30, 2022, (ii) Dec. 31, 2022, (iii) and March 31, 2023.
And on and on. The debtors fell out of compliance with “certain covenants.” While it obtained forbearance agreements, the most recent of which expired July 25, “if the Company's debt were accelerated, it [would] not have sufficient cash to repay the outstanding debt.” Pat Roney — perhaps realizing the whole SPAC idea was not the way he wanted to be remembered — resigned as CEO in Feb. ‘23, but remains as executive chairman. The debtors that year introduced a “five-point plan”: generate cash, reduce debt, expand margins, etc. The debtors sacrificed 4% of the workforce to appease the margin gods, saving $6mm. The debtors also divested 992 acres for $19.7mm, and sold The Sommelier Company and the physical assets of their Tamarack Cellars production facility.
In January, the debtors rolled out an “organizational restructuring plan”: Another 15% of the workforce packed their pruning shears. $7.1mm saved! Given the “premiumization trend,” — yes, that’s actually a word — the debtors also elected to focus on their “luxury” wines, such as Bar Dog, B.R. Cohn, Cameron Hughes, Cherry Pie, Firesteed and Kunde brands.
The debtors quickly found that they can prune employees/costs but there’s no shedding the lawyers. In November ‘22, the debtors got hit with a class action lawsuit — the type that’s filed whenever a company’s stock price crumbles as miserably as this sh*t show has. Kaufman notes additional litigation, “generally related to breach of contract claims.” The debtors believe they will prevail, but the cost is another drain on liquidity.
In Sept. ‘23, the debtors and their then-investment bank Oppenheimer & Co., decided to sell. Sell what? Everything or even only some of it (brand or an asset) or place “less than a majority” of equity with a strategic partner or investor. No luck. In Jan. ‘24, the debtors went to Plan B: monetize specific brands and assets, “simplify” the direct-to-consumer business, wind down the B2B services, and focus on “super premium” estate wineries. It retained GLC Advisors & Co. LLC (“GLC”) for another round of “strategic alternative” evaluation. The approach of unloading non-core, underperforming assets was not panning out. “GLC and the Company recommended a broader sale process to the Prepetition Lenders, including requesting additional funding from the Prepetition Lenders on an out-of-court basis. While the lenders were supportive of a broader sale process, they were unwilling to provide additional long-term funding outside of a chapter 11 context,” GLC managing director Jeff Raithel writes in his motion supporting the bid procedures.
Tough sale? Yes — over “thirty distinct assets” which would not necessarily attract a single bidder. Which is to say, a buyer seeking an asset that’ll render him senseless in the least amount of time at the lowest possible cost may well decline an asset you’d serve at an important dinner featuring, say, ortolan or foie gras or canard à la presse. GLC contacted 500 parties; 150 have signed non-disclosure agreements, 100 are still reviewing. “Certain parties have indicated a willingness to become a Stalking Horse Bidder(s).” A footnote in Raithel’s motion indicates that the debtors were unable to obtain a stalking horse for any of their assets prior to the petition date. They are still seeking to designate such bidders. (Nevertheless, they were able to sell its Cossentino asset prior to filing, and without a stalking horse; here you can obtain 15% off your first order.) Credit bids are accepted, as are mixed bids.
“Time is of the essence,” the debtors say in their bid procedures motion. “Given the debtors’ current financial condition,” the parties agreed to, among other things, a stalking horse designation deadline of August 22, 2024, an auction on September 10, 2024, and a September 27, 2024 sale consummation deadline. A hearing to consider the bid procedures motion is scheduled for August 20 at 10:30am ET.
Those dates are also significant for the financing of the cases. The debtors’ outstanding liabilities include $310mm of secured debt governed by a credit agreement executed in ‘22. BMO Bank N.A. (“BMO”) is the agent.* The agreement was amended five times between Feb. ‘23 and the petition date. Matters addressed included the debtors’ failure to failure to maintain a proper adjusted EBITDA level for two fiscal quarters, failure to deliver unaudited balance sheets and financial statements, failure to provide a compliance certificate, and failure to comply with those “certain financial covenants.” The lender group cut commitments to the revolver and delayed-draw term loan on two occasions, but they did graciously advance the debtors $7.5mm in July as part of fifth and final amendment.
The debtors seek to fund the cases through a $60.5mm senior secured priming post-petition financing (the “DIP”) — of which $26.5mm is new money — provided by the prepetition lenders, with BMO as agent. The court approved $21.5mm on an interim basis at the July 25, 2024 first-day hearing. This included a roll-up of the aforementioned $7.5mm bridge financing and then a 1:1 roll-up of interim new money. The debtors will seek the rest of the commitment — also on a 1:1 roll-up basis — at the final hearing. Fees amount to $1.06mm, or 4% of the commitment amount, and administration fee is $530k.
Perhaps Governor Gavin Newsom should add some piece of the debtors to his estate?** The honorable governor opened a “humble wine store” called PlumpJack Winery on the mean streets of the Cow Holler/Marina neighborhood of SF in ‘92; then he and “acclaimed composer” Gordon Getty (“embracing the spirit of camaraderie and enjoyment”) bought some acres with vines attached. And voila! His Honor’s grapes, duly fermented. Looks like they travel well? You can’t search by price — likely because his customers aren’t the kind of people who have to worry about price.
The debtors received other requested first-day relief on an interim basis at the first-day hearing on July 25, 2024. The debtors’ “second day hearing” is scheduled for August 20, 2024 at 10:30am ET.
In addition to Jones Day as legal counsel, the debtors are represented by Richards, Layton & Finger PA (Daniel J. DeFranceschi, Michael J. Merchant, Zachary I. Shapiro, Matthew O. Miliana) as local counsel, Riverton RTS (Jerry Levin, Michael Flynn, Robert Clark) as financial advisor, and the aforementioned GLC (Jeff Raithel) as investment banker. BMO, as pre-petition agent and DIP Agent is represented by Buchalter (Robert Miller, Khaled Tarazi, Brian Harvey) and Womble Bond Dickinson (US) LLP (Matthew P. Ward, Morgan L. Patterson). Fox Rothschild LLP (Michael Menkowitz, Jesse Harris, Michael Sweet, Stephanie Slater) represents the official committee of unsecured creditors.
*Trade debt stands at $25.4mm and capital lease obligations at $15.5mm. The debtors are also in a grape purchase agreement with Gallo Vineyards, Inc. and E. & J. Gallo Winery (together, "Gallo"), which grants the well-known producer of cheap reds in gallon jugs or boxes security interest to grapes and resulting “wine in bond.” The debtors also believe that certain products they have purchased but not paid for – grapes, for instance – may qualify as "perishable agricultural commodities" under the Perishable Agricultural Commodities Act of 1930 (“PACA”). PACA claimants are paid ahead of secured and unsecured claimants; Kaufman believes they may be entitled to some $750k.
**There’s probably a law or something saying he can’t, but come on. As though that crap mattered.
Company Professionals:
Legal: Jones Day (Heather Lennox, Carl Black, T. Dan Reynolds, Gary Kaplan, Robert Hamilton, Isel Perez, Nick Buchta) and Richards Layton & Finger PA (Daniel DeFranceschi, Michael Merchant, Zachary Shapiro, Matthew Milana)
Financial Advisor: Riveron RTS LLC (Jerry Levin, Michael Flynn, Robert Clark)
Investment Banker: GLC Advisors & Co. LLC (Jeff Raithel)
Claims Agent: Epiq (Click here for free docket access)
Other Parties in Interest:
Pre-petition & DIP Lender: BMO Bank NA
Legal: Buchalter (Robert Miller, Khaled Tarazi, Brian Harvey) and Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)
Official Committee of Unsecured Creditors
Legal: Fox Rothschild LLP (Michael Menkowitz, Jesse Harris, Michael Sweet, Stephanie Slater)