Situation Overview

Bar Louie is a US based operator of bar and restaurant dining facilities throughout the US. Marketed as a “gastrobar,” a take on the gastropub, the Company seeks to differentiate the brand through an array of craft cocktails, an enhanced food menu offering, and a friendly and warm bar style environment. The Company’s gastrobars are located in a variety of locations, including lifestyle centers, traditional shopping malls, event locations, central business districts and other stand-alone specialty sites.

In the 7 years prior to Carl Marks Advisor’s (CMA’s) involvement, the Company embarked on an expansion initiative that saw the chain grow to ~110 corporate locations and ~24 franchise locations, with operations in 26 states and the District of Columbia. Growth was funded via a combination of free cash flow from operations and add-on debt capital.

By 2019, a large number of the locations were unprofitable. Locations within shopping malls were especially hard hit, as reduced foot traffic and changing consumer demographics eroded sales volume. Declining EBITDA and free cash flow impaired the Company’s ability to service its debt, and the lack of available funds to reinvest in Capex and marketing created a tailspin of continued declines in earnings across the operating footprint. In August 2019, with limited liquidity remaining, the decision was made to seek an independent assessment of the Company’s strategic alternatives.

Out-of-Court Chief Restructuring Advisor

CMA was retained in August 2019 to assess the Company’s liquidity situation and provide a strategic review of restructuring alternatives. CMA determined that the Company required incremental capital to operate, and that a long-term solution required the Company to exit unprofitable locations dragging on the business. Given capital constraints and the unprofitable locations, it was determined that a sale process, via a Chapter 11, Section 363 sale, was the most viable alternative. It was also determined that the process itself would be better served with the support of a stalking horse bidder, which required time (and bridge funding) to locate.

CMA was retained as Chief Restructuring Advisor to support the Company during the out-of-court sale process. CMA was able to assist the Company in securing $3MM in bridge funding, oversaw the management of cash flow, developed a strategic plan, and helped the Company prepare for the potential Chapter 11 filing required to facilitate a sale.

The Company’s investment banker reached out to approximately 101 potential strategic buyers and 153 financial buyers during an out-of-court marketing process. Although it failed to locate a stalking horse bidder, the process generated enough interest to indicate that an in-court auction would yield a meaningful response. The lender group, through assistance from CMA, agreed to be the stalking horse bidder via a credit bid. The Company was able to secure a $22MM DIP loan and a $82.5MM stalking horse credit bid from the existing lenders.

In-Court Chief Restructuring Officer

With DIP funding and a stalking horse bid in hand, CMA was retained as Chief Restructuring Officer and the Company filed Chapter 11 Bankruptcy on January 27, 2020. Immediately prior to the filing, CMA and management facilitated the closure of 38 unprofitable locations over a 24-hour period without incident. The remaining 72 locations would be marketed for sale during an in-court auction process.

Coincident with the marketing process, the Company engaged a real estate advisor to extract rent concessions from landlords of the remaining 72 locations. As CRO, CMA was the primary interface between all stakeholders (management, lenders, potential bidders, landlords, RE advisor) involved.

In the middle of the auction process, an unexpected challenge arose with the impact of the COVID-19 pandemic. Bars and restaurants were some of the hardest hit by the pandemic, and Bar Louie saw a material decline in sales volume during the initial stretches of the lockdown. Together with CMA, management was able to take emergency, proactive steps to preserve cash, maintain the confidence of the lender group and continue to operate well within the confines of the DIP budget. Emergency actions included, among other initiatives, building out delivery and takeout capabilities to offset lost sales volume, the permanent closure of another 22 locations, and immediate negotiations with remaining landlords for rent deferrals and abatements.

Despite the significant sales loss, the Company was able to maintain sufficient liquidity within its original $22MM DIP financing, and successfully executed on the 363 sale to the lender group on May 27, 2020.

As CRO, CMA has been tasked with the wind down of the post-sale estate. This includes the post-closing transition services agreement with the buyer, which will help facilitate the transfer of ~50 liquor licenses from seller to buyer over a ~3-month timeframe.

Additionally, as part of the deal made with the unsecured creditors committee, the liquor licenses of the ~60 closed locations were left behind to fund unsecured creditor recoveries. CMA will lead the marketing and sale of these liquor licenses throughout the duration of the wind down.

Results & Key Takeaways

  • Developed a strategic plan to improve profitability through a combination of operational initiatives and bar closures
    • Took immediate action to reduce operating burn and preserve liquidity in the interim period before securing bridge funding
  • Secured bridge funding and successfully managed operations through a ~3-month pre-filing period while the Company looked for a potential stalking horse bidder
  • Prepared the Company for an efficient Chapter 11 filing and coordinated the closure of ~60 unprofitable locations that were a drag on profitability
  • Developed an emergency response plan to preserve liquidity and pivot the sale process in the midst of the COVID-19 lockdown
  • Successfully executed on a sale of the Company’s 50 best performing locations to the existing lender group
    • Purchase price included a credit bid of ~$82.5MM, an assumption of ~$10MM in liabilities and ~$12.5MM of new money funding to operate post-closing