Chicken Soup for the Soul (CSSE) converted its chapter 11 case to a chapter 7 liquidation after the company announced to the Delaware Bankruptcy Court yesterday that it failed to reach a consensus with prepetition lenders due to the lack of a viable budget to fund its path through bankruptcy. Michael Cooley of Reed Smith for the debtor stated to presiding Judge Thomas Horan at a status conference yesterday that “this is heartbreaking because we think there is value but the lenders are not willing to take the risk associated with a [chapter 11 bankruptcy].”
Richard Pachulski, special counsel for CSSE’s management, stated that the reality is that there is not enough income to cover payroll and ongoing employee health insurance despite the $8mn interim DIP facility. Even after securing the $8mn in financing, CSSE is $1.5mn short in funding health benefits.
The debtor filed for chapter 11 on June 28 with an original $20mn DIP commitment from prepetition lender Owlpoint. However, the debtor’s first-day hearing on July 1 was adjourned, as court filings revealed that the debtor was behind 10 days on payroll. Prepetition creditor HPS stepped in and agreed to provide $8mn in initial DIP financing to allow the debtor to fund payroll and restore health benefits, with an increase to the facility available in the future.
Despite the attempts to secure additional financing for the debtor’s bankruptcy operations, CSSE and its creditors stated to the court yesterday that it failed to produce a viable 13-week DIP budget that would see the case through emergence.
Related Documents:
Order Converting to Chapter 7
