Ayon Capital

Feb 14, 2023

First Name * Submit [Just filed. Developing story.] February 14, 2023 – Tuesday Morning Corporation and six affiliated Debtors (“Tuesday Morning” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 23-90001 (Judge Edward L. Morris). The Debtors, an off-price retailer specializing in products for the home (487 stores in 40 states as at September 21, 2022), are represented by Deborah M. Perry of Munsch Hardt Kopf & Harr P.C. Further board-authorized engagements include (i) BDO USA  as restructuring advisor, (ii) Piper Sandler as investment banker and (iii) Stretto as claims agent. The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Centro Inc. ($1.4mn trade claim), (ii) Home Essentials and Beyond Inc. ($1.1mn trade claim) and (iii) Meyer Corp. ($830k trade claim). Filing Date Highlights Off-Price Retailer Files Chapter 22 with Over $100.0mn in Liabilities Filing Follows $32.0mn November 2022 "Lifeline" from New Owners Distressed E-Commerce Specialist Retail Ecommerce Ventures LLC and Ayon Capital in Addition to "Challenging Consumer Environment," Debtors Cite Changes to "Leadership Team" Following Wholesale Changes at Board and C-Suite Debtors File with DIP Discussions "Ongoing" and Role of REV/Ayon Unclear Debtors to pursue Liquidation of Some/All of 407 Stores if DIP Financing not Available The lead Debtor's Chapter 11 petition suggests that notwithstanding prepetition efforts and the receipt of a $32.0mn lifeline (in the form of convertible debt) from Ayon Capital, LLC (“Ayon”) and Retail Ecommerce Ventures LLC (“REV,” which holds just over 50% of the Debtors' equity) in September 2022, the fall into chapter 22 is a hard one (or is it?, see just below on REV/Ayon possible loan-to-own strategy), with debtor-in-financing ("DIP") financing yet to be sourced (discussions "ongoing") and the Debtors' board authorizing a liquidation process should DIP financing, and a related going concern path out of bankruptcy, not become available. REV has established itself a something of a ubiquitous player in the distressed e-commerce space, having acquired the e-commerce assets of, inter alia, Pier 1 Imports, Linens ‘n Things, Stein Mart and Modell’s Sporting Goods, out of bankruptcy. A visitor to the retailecommerceventures.com website (quickly redirected to TaiLopez.com) is treated to a range of money making tips and offers by REV's Tai Lopez before getting a chance to scroll through all of his acquisitions ("Brands Tai Has Acquired"). Has Tai had an enlightenment about loan to own strategies (if so he will undoubtedly share it, in "Tai in the News") and is the apparent management and operational shambles (see just below) experienced by the Debtors since September all part of Tai's genius? If so, the Debtors (and REV/Ayon), who have publicly stated REV/Ayon instituted November management changes and the REV/Ayon strategic investment drove the Debtors towards bankruptcy*, will undoubtedly face significant opposition to any attempt by REV/Ayon to acquire ownership through their $32.0mn of prepetition debt and/or any agreed DIP financing. Especially if it involves what would appear a cynical liquidation effort of all/part of the Debtors' 407 bricks-and-mortar stores (with attendant jobs losses) leaving REV holding the e-commerce assets * Freshly minted CEO Berger commenting on disappointing Q3 results : "our teams navigated a challenging consumer environment as well as the previously discussed disruption in receipt flow due to the timing of the finalization of our strategic investment late in the quarter,” before withdrawing Tuesday Mornings 2023 guidance citing "announced changes to its leadership team." With the September 2022 financing, came a change of control of the Debtors and a wholesale replacement of the Debtors' board (only CEO Fred Hand staying on…and that only until he "decided to retire" six weeks later), with REV's Tai Lopez and Dr. Alex Mehr taking two board slots and REV and Ayon with the authority to fill three more. The Debtors also nominally got three independent directors, albeit also appointed by REV and Ayon. The injection of financing, then heralded as providing "sufficient liquidity to pay down creditor and supplier obligations and sufficient liquidity to support operations moving forward," seems to have quickly proved insufficient with the Debtors back into the hunt for more capital just two months later citing "lower than forecast sales, increased insurance costs and costs relating to the separation with senior Company executives in November 2022 [resulting in a position where] the Company is facing near-term capital constraints and is actively seeking to raise additional capital." Less than two months after the REV and Ayon assumed control of the Debtors, the Debtors were suddenly afflicted by an acute case of the "great retirement-itis," with CEO Fred Hand, Chief Operating Officer (and interim Chief Financial Officer) Mark Katz and "Principal and Chief Merchant" Paul Metcalf all suddenly "deciding to retire. " Stepping into the significant void, Andrew T. Berger, with the Debtors since his appointment to the Board as an independent seven weeks earlier) was appointed Chief Executive Officer (and taking over CFO responsibilities for good measure). Voluntary Delisting In a December 23, 2022 press release , the Company (NASDAQ: TUEM) announced that it had notified The Nasdaq Stock Market LLC (“Nasdaq”) of its decision to voluntarily delist its common stock from the Nasdaq Capital Market. The press release notes: "Due to a number of factors, including lower than forecast sales, increased insurance costs and costs relating to the separation with senior Company executives in November 2022, the Company is facing near-term capital constraints and is actively seeking to raise additional capital. With the Company’s liquidity position and the potential benefits of listing in mind, the Board of Directors has determined that the voluntary delisting of the Company’s common stock is in the best interests of the Company and its stockholders. A subsequently filed February 23rd 8-K confirmed the delisting. Previous Bankruptcy On December 31, 2020, the Debtors notified the Court that their Revised Second Amended Plan of Reorganization had become effective as of December 31, 2020 [Docket No. 1938]. The Debtors entered that that turn through the bankruptcy turnstiles with estimated assets of $92.0mn and estimated liabilities of $88.35mn. They also had a then footprint of 687 stores in 39 states. In a December 23, 2020 press release (also 8-K here ) noting the Plan's confirmation, the Debtors stated: “Under the terms of the Plan, the capital structure of the reorganized company is expected to consist of a $110 million asset-backed lending credit facility which will provide working capital and $25 million in principal amount of a new senior subordinated note. Additionally, approximately $40 million in cash proceeds from an upcoming backstopped rights offering will be applied to pay creditors under the Plan.” About the Debtors According to the Debtors : “Tuesday Morning Corporation is one of the original off-price retailers specializing in name-brand, high-quality products for the home, including upscale home textiles, home furnishings, housewares, gourmet food, toys and seasonal décor, at prices generally below those found in boutique, specialty and department stores, catalogs and on-line retailers. Based in Dallas, Texas, the Company opened its first store in 1974 and currently operates 487 stores in 40 states."