Below is our initial take on recent bankruptcy-related developments:
Having rebranded as WW International in 2018 and acquired Sequence, a telehealth company, in 2023, the 62-year-old health and wellness company has now filed for bankruptcy as of Tuesday.
S&K Take: Video has killed yet another radio star. A name that most everyone (of at least a certain age) knows well, Weight Watchers, has filed a prepack aimed at cutting debt service by $50 million. The company blames its woes on GLP-1s and Tik-Tok, YouTube and Instagram fitness influencers. Essentially, there is no place for an old-fashioned diet prescribed by Oprah Winfrey in today’s marketplace. Nowadays people want drugs and free DIY fitness programs sent to them via social media algorithm. The prepack would nominally cut debt by $1.15 billion (to $465 million), with the first lien holders taking 90% of the equity in the reorganized company and the take back paper. GUCs would pass through, and equity would get a generous tip, you know, for the effort, of 9% subject to dilution by a management incentive plan. A dual DS and confirmation hearing is set for June 17, so a relatively quick prepack (although not of the 1-day variety). Debtors say that 79% of the 1L loans and 74% of the senior notes are on board. This may be a quick one, although the larger question with recent cases is whether the cuts are deep enough (see Rite Aid, chapter 22).
On Tuesday, a Florida federal judge granted defendant’s motion to dismiss claims related to the FTX bankruptcy.
S&K Take: In the TMZ segment of today’s blog, a hilarious list of celebrities have wriggled off the hook (for the moment) in the multidistrict litigation alleging that they fraudulently peddled FTX to unsuspecting investors. Judge Moore granted a motion to dismiss the vast majority of claims against, among others, Tom Brady, Stephen Curry, Shohei Ohtani, Larry David, David Ortiz, Naomi Osaka, Gisele Bundchen, Kevin O’Leary and Udonis Haslem (huh? How’d he get in there?) because the lot lacked the requisite intent to sustain the claims—i.e., they did not have knowledge of the fraud. The Judge noted that they might be “uninformed, negligent, or even reckless,” but plaintiffs did not show that they had “any knowledge of FTX’s fraud” or “had the requisite intent to deceive or defraud investors.” The Judge declined to dismiss two claims under Florida and Oklahoma securities laws alleging that the defendants aided in selling unregistered securities. Interestingly, the Court rejected the argument that FTX accounts and FTT tokens were not securities under Howey. Judge Moore gave plaintiffs 21 days to amend the complaint to adequately allege knowledge, so they’ll have another bite at the apple. Oh, and Shaq settled on April 23, so if you are wondering where he is, now you know.
Once a $4 billion-a-year business, Harvest Sherwood filed for Chapter 11 bankruptcy on Monday. The company seeks to finalize its wind-down in Dallas Bankruptcy Court.
S&K Take: An abrupt downturn for a massive business. Harvest Sherwood was the product of a 2017 merger between Harvest Food Distributors and Sherwood Food Distributors (which formed, you guessed it, Harvest Sherwood Food Distributors—apparently, the food distribution industry is a very literal business). The merger created the largest independent distributor in the US, which had revenues of over $4 billion. The business was seemingly fine until mid-2024, when it lost its largest customer, Sprouts Farmers Market, and was downgraded by a credit rating agency, SEAFAX, which caused its vendors to tighten contract terms. This caused a liquidity constraint that ultimately choked the company out. The Debtors cut a deal with Sprouts (to end that relationship), but in December 2024, they allege that Sprouts breached the deal, which gave rise to a $42 million lawsuit against Sprouts. Around the same time, existing lenders declined to extend further credit, and so the company went into wind-down mode. The company brought in Hilco to liquidate its inventory (as commentators have noted, probably have to get meats off of the shelf pretty quickly), resulting in the sale of $154 million in face value inventory (for $140 million, kudos to Hilco). The company also sold off certain of its distribution centers, leaving one in Dallas as the last man standing. The company is left with certain litigation assets, including $1.1 billion in antitrust claims, which could have real value, although those are subject, in some capacity, to a litigation finance agreement with Burford. The lenders offered up a $25.9 million DIP (with a 3x roll of $79.1 million). That has been opposed by an ad hoc group of 25+ unsecured creditors, an L/C financier, and Sprouts. It doesn’t appear there is a lot left to do in the bankruptcy, although given the challenges to the DIP, there are a few well-heeled creditors that apparently still have a bone to pick. We will keep an eye on this as it progresses.