Hospitality Staffing bankrupt; investors' affiliate submits credit bid

By Caroline Salls

Pittsburgh, Oct. 24 - Hospitality Staffing Solutions Group, LLC filed Chapter 11 bankruptcy on Oct. 23 in the U.S. Bankruptcy Court for the District of Delaware.

Chief restructuring officer and Conway Mackenzie, Inc. senior managing director Jeffrey Zappone said in a statement filed with the court that the company's bank group sold its debt and assigned its credit facility to investors SG Distressed Fund, LP, Littlejohn Opportunities Master Fund, LP, LJC Investments I, LLC and their respective investment affiliates on Oct. 11.

Zappone said the company defaulted on its credit facility in April 2013, and the bank group imposed a payroll reserve that further restricted its ability to fund operations.

"The debtors' equity sponsor was not prepared to put additional capital into the business without relief from the obligations due under the credit facility, alternative sources of financing were unavailable, and the bank group was not prepared to fund an over advance," Zappone said.

Bank group resistance

Hospitality Staffing and the bank group entered into a forbearance agreement on June 19, but that agreement expired on Aug. 31.

Despite preliminary interest generated from a marketing process, Zappone said the Hospitality debtors were unable to get the bank group to extend the forbearance agreement, and the bank group refused to fund a sale process under section 363 of the Bankruptcy Code, or any process beyond October.

The CRO said the bank group instead favored a private sale of the company as soon as possible.

Zappone said the investors acquired the debt owed to the bank group, and the debtors entered into exclusive negotiations with the investors to fund both the ongoing business operations and a competitive open sale process in which HS Solutions Corp., a newly created company affiliated with the investors, would serve as stalking-horse bidder by way of a credit bid.

"Given the debtors' financial position, the need for further due diligence by certain other potential purchasers, the contingencies contained in such potential purchasers' respective expressions of interest and the desire for employee stability," Zappone said Hospitality Staffing concluded that the best way to maximize value would be to file for bankruptcy protection in order to conduct an open sale with HS Solutions serving as stalking-horse bidder.

DIP financing

In conjunction with the bankruptcy filing, the company secured a commitment for $7 million in debtor-in-possession financing from HSS DIP, LLC.

The financing will mature on the earlier of three months from the date of the interim order and either a plan of reorganization effective date or completion of a sale.

Interest will be 13%.

The company is seeking interim access to $3.5 million of the DIP financing.

Debt details

According to court documents, Hospitality Staffing has $10 million to $50 million in assets and $50 million to $100 million of debt, including $22.91 million outstanding under a credit facility, $22.9 million outstanding on subordinated notes, $8.65 million outstanding under an unsecured seller note, $3.82 million outstanding under an unsecured convertible note and about $2 million in trade debt.

The company's largest unsecured creditor is Pennsylvania Manufacturers' Association of Blue Bell, Pa., with a $2 million insurance debt claim. No other unsecured creditors were listed with claims of $1 million or more.

HSS Holding, LLC, which is the lead debtor in the bankruptcy case, owns 100% of Hospitality Staffing's units.

The company is represented by Saul Ewing LLP.

HSS is an Atlanta-based provider of hospitality staffing services to hotels, resorts and casinos. The Chapter 11 case number is 13-12740.

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