We last covered LL Flooring Holdings Inc. …
… a week before a contested shareholder meeting catalyzed by the company’s former founder, Thomas Sullivan.
Well, we’re happy to report that the shareholders voted anddddd … Mr. Sullivan won! LFG!!!
Mr. Sullivan got himself and two other nominees onto the board with quite the landslide:
We mean, how can you not vote for this guy?
That deadpan stare just screams hands dirty, hardwood flooring type of guy. It doesn’t hurt that he was also spouting this to shareholders:
Note the “considering filing for bankruptcy” part because, well, merely one month later and we get:
After a hard fought battle and promises to look out for shareholders, LL’s management and lenders looked at Mr. Sullivan, took stock of the big bad proxy fight, and be like:
As Thanos once said, to the “inevitable.” On August 11, 2024, LL Flooring Holdings Inc and four affiliates (together, the “debtors”) filed chapter 11 cases in the District of Delaware (Judge Shannon).
Look, we’ve already covered this name at length. Here’s our initial coverage detailing the macro headwinds and operational challenges at the company …
… and here is the ensuing the drama (proxy fight) involving Mr. Sullivan:
If you're caught up, you’ll know that the home renovation industry in general has been in a bit of a down swing since the COVID swell subsided. You’ll also know that the company had its share of unsolicited offers last year ranging from $2.50/share to $5.85/share. Notably, Mr. Sullivan’s entity, F9 Brands Inc (“F9”), submitted several indications of interest. None of these offers were taken up by the board and here we are. Pour one out for the equity holders, 🥃, it’s been quite a rough ride:
The debtors attempted to refinance their ABL facility in April ‘24 with Houlihan Lokey Capital Inc. ($HLI) (“Houlihan”) tasked with the effort, but they were ultimately unsuccessful. The debtors, therefore, had an itty bitty amount of trouble with something called “covenants” under the ABL agreement. Whoopsies.
And so the debtors have fallen through the hardwood floor and into bankruptcy court. This is set to be a 363 going concern sale to be led once again by Houlihan.* Hopefully this time it goes smoother than JP Morgan Securities LLC’s woefully unsuccessful year-long out of court sale process (again, see our previous coverage on the unsolicited offers here).
Separately there is an LOI from a bidder for the debtors’ Sandston, Virginia distribution center (the “Sandston DC”) for ~$100mm. We mentioned Sandston DC in our last piece after Mr. Sullivan popped up as a potential buyer in the midst of the proxy fight:
We’re unsure if the current interested party is still Mr. Sullivan but $100mm is nothing to scoff at.** Taking a look at the prepetition debt stack…
… it’s enough to almost cover the entire thing! And that’s without considering the actual sale of the business.
But first things first, the debtors have to finance these cases. Luckily the ABL lenders have kindly extended an up-to $130mm DIP that will roll up the $10.6mm letters of credit and also roll up the $99mm prepetition ABL amount on a creeping basis. The debtors are only forecasting $11mm in additional funding postpetition.
The DIP carries an interest rate of base rate + 2.25% and a maturity of October 18, 2024.*** Under the DIP milestones, the debtors also have until August 26, 2024 to find a stalking horse or this entire thing will convert into a full liquidation. And while the debtors indicated that there were multiple interested parties to fill the stalking horse role, we’ll believe it only after we see one of those parties listed in an asset purchase agreement that hits the docket. If a stalking horse is secured by the deadline, the debtors have until September 12, 2024 for an auction and until September 16, 2024 to get court approval for the sale.
Will LL Flooring take one final “L” (for liquidation)?
The debtors are represented by Skadden, Arps, Slate, Meagher & Flom LLP (Lisa Laukitis, Shana Elberg, Elizabeth Downing, Angeline Hwang, Jamie Brumberger, Chambliss Williams, Joseph Larkin, Jason Liberi) as legal counsel, AlixPartners LLP (Holly Etlin) as financial advisor, and Houlihan Lokey Capital Inc (Surbhi Gupta) as investment banker. Bank of America N.A. is represented by Morgan Lewis & Bockius LLP (Christopher Carter, David Shim) and Reed Smith LLP (Kurt Gwynne, Jason Angelo) as legal counsel.
*In addition, the debtors are already looking to close 94 of their 300 stores with the aid of Hilco Merchant Resources LLC (“Hilco”).
**Important to note here that the Sullivan nominated directors all resigned 3 days prior to the petition date and the number of board seats was reduced from 9 to 6. An indication that Mr. Sullivan is indeed still the bidder for the Sandston DC? Maybe.
***Base rate is “the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (c) Term SOFR plus 1.00%”
Company Professionals:
Legal: Skadden, Arps, Slate, Meagher & Flom LLP (Lisa Laukitis, Shana Elberg, Elizabeth Downing, Angeline Hwang, Jamie Brumberger, Chambliss Williams, Joseph Larkin, Jason Liberi)
Financial Advisor: AlixPartners LLP (Holly Etlin)
Investment Banker: Houlihan Lokey Capital Inc (Surbhi Gupta)
Claims Agent: Stretto (Click here for free docket access)
Other Parties in Interest:
Prepetition ABL and DIP Agent: Bank of America N.A.
Legal: Morgan Lewis & Bockius LLP (Christopher Carter, David Shim) and Reed Smith LLP (Kurt Gwynne, Jason Angelo)
SNA NE LLC
Legal: Hogan Lovells US LLP (John Beck) and Morris Nichols Arsht & Tunnell LLP (Andrew Remming)
F9 Investments LLC
Legal: Dentons US LLP (Samuel Maizel, David Cook) and Pachulski Stang Ziehl & Jones LLP (Laura Davis Jones)