Chicken Soup for the Soul Entertainment Inc. (CSSE), the parent company of Redbox, was directed by the court to postpone its first-day hearing in Delaware today. Judge Thomas Horan’s decision was based on revelations that the company is behind on payroll by 10 days, according to recent court filings.
CSSE, which filed chapter 11 bankruptcy in Delaware on Saturday, aimed to secure interim access to a $20mn DIP facility during its first-day hearing. However, the proceedings have been postponed to 9:00 ET tomorrow, with Judge Horan directing the debtor to reach a consensus with its creditors to free up capital to fund the business. Among the creditors, HPS Investment Partners LLC, serving as the agent to CSSE’s prepetition lenders, has filed an objection to its proposed DIP facility and a motion to appoint a trustee or convert the case to a chapter 7 liquidation.
According to the declaration of Chairman and CEO William Rouhana, the company is seeking chapter 11 relief due to financial struggles that were exacerbated by the Covid-19 pandemic’s impact on theatrical releases and subsequent changes in consumer behavior, which severely affected kiosk rental business Redbox. According to Rouhana’s declaration, the “lack of cooperation” from pre-petition lenders hindered the company’s ability to secure additional financing, leading to strained relationships with creditors and content providers.
The company’s proposed restructuring strategy would involve the reduction of its $500mn prepetition funded debt through a sequenced recapitalization plan, potential sales of certain business segments, and the settlement of debts.
However, HPS has filed an emergency motion to appoint a chapter 11 trustee or convert to chapter 7. HPS alleges “gross mismanagement and self-dealing” by Rouhana, the chairman of the board, which has led to the debtor’s insolvency and necessitated bankruptcy protection. HPS claims in its motion that current management’s continued control over the debtors poses a severe risk to the interests of creditors and the integrity of the bankruptcy process, according to court filings, and suggests that a chapter 11 trustee be appointed immediately.
The debtor’s first-day hearing is now scheduled for July 2 at 9:00 ET.
Prepetition Debt Structure
- The debtor has a TL facility with HPS and other lenders totaling $365.5mn.
- The debtor has an RC facility with HPS and other lenders for $31.7mn drawn from $80mn.
- The debtor made an additional draw on RC $25.9mn at closing and then a $22.3mn subsequent draw.
- “As of April 29, 2024, HPS asserted that $500,876,623.42 in outstanding principal was due and owing under the Pre-Petition Secured Facility, plus fees, expenses, interest (including default interest) and other amounts that are chargeable or otherwise reimbursable under the Pre-Petition Loan Documents.”
Debtor-in-Possession Financing
- Debtor will seek a $20mn new-money priming secured DIP facility provided by prepetition lender Owlpoint with $10mn available upon entry of an interim order.
- The credit facility includes an accordion feature and “could be increased should the need arise at Lender’s Sole and Absolute Discretion.”
- The DIP facility will accrue interest at a 3-month SOFR with a floor of 4% plus 11% margin and mature upon the effective date.
- The facility will pay a 3% commitment fee and penny warrants equal to 5% of the reorganized entity in favor of the prepetition lender.
Related Documents:
Declaration of William Rouhana – Chairman
Motion to Approve Postpetition DIP Financing
Motion to Appoint Chapter 11 Trustee or Convert
