SportCo Holdings, Inc. – Files Last Minute Amendments to Plan to Include New Class Comprised of Management Fees Claimed by Wellspring Capital Management LLC

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September 13, 2019 – The Debtors filed a Second Amended combined Plan and Disclosure Statement and a related blackline showing changes from the version of the combined document filed on September 10, 2019 [Docket Nos. 394 and 395, respectively]. 

The combined document has been amended at the last minute to allow for the creation of a new class, Class 5 ("Wellspring Subordinated Claims"). Class 5 is comprised of management fees that are claimed by Wellspring Capital Management LLC ("Wellspring") one of the Debtors' principal pre-petition equity holders. The response from the Debtors' pre-petition term loan lenders, who have a large deficiency claim sitting in Class 4 (“General Unsecured Claims and Prepetition Term Loan Deficiency Claims”) is the standard one from someone waiting in line when someone tries to cut into that line at the last minute: "The line is back there…behind me." Behind that large ($223.8mn) deficiency claim, it is worth nothing. The Debtors have added the class so that the Plan can move on towards confirmation, where the issue of subordination can be decided by the Court.

The combined Plan/Disclosure Statement states, “The Combined Plan and Disclosure Statement is a liquidating chapter 11 plan. The Combined Plan and Disclosure Statement provides for the proceeds from the Debtors’ assets already liquidated or to be liquidated over time to be distributed to holders of Allowed Claims in accordance with the terms of the Combined Plan and Disclosure Statement and the priority of claims provisions in the Bankruptcy Code. Distributions will occur on the Effective Date or as soon thereafter as is practicable and at various intervals thereafter, except as otherwise provided by Order of the Bankruptcy Court. At the Liquidation Trustee’s option, the Liquidation Trustee will cause the Debtors’ existence to be terminated by dissolution, or as otherwise permitted by applicable law, as soon as practicable on or after the Effective Date on such terms as the Liquidation Trustee determines to be necessary or appropriate to implement the Combined Plan and Disclosure Statement and without further order of the Bankruptcy Court. The Liquidation Trustee may cause the Debtors to adopt any plan and execute, deliver, and file any agreement or document the Liquidation Trustee determines to be necessary and appropriate.”

The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the combined document):

  • Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $27,300 and expected recovery is 100%.
  • Class 2 (“Prepetition Term Loan Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $249.8mn and expected recovery is $35.8mn or 14.3%.
  • Class 3 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $815 and expected recovery is 100%.
  • Class 4 (“General Unsecured Claims and Prepetition Term Loan Deficiency Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of General Unsecured Claims is $43,000,000 amounting to approximately 16% of total Class 4 Claims; and the aggregate amount of Prepetition Term Loan Deficiency Claims is $223,828,000 amounting to approximately 84% of total Class 4 Claims. Holders of Allowed General Unsecured Claims and Prepetition Term Loan Deficiency Claims will share in recoveries from both Type A and Type B Causes of Action.
  • Class 5 – ("Wellspring Subordinated Claims")  is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $3.5mn and expected recovery is $0%. Wellspring has asserted claims against the Debtors totaling not less than $3,486,259 for unpaid management fees and expenses. The Prepetition Term Loan Agent and the Committee allege that pursuant to the terms of the Prepetition Term Loan Agreement, Wellspring’s Claims arising from the Management Agreement are contractually prohibited and subordinated to the Prepetition Term Loan Lenders until the Obligations (as defined in the Prepetition Term Loan Agreement) owing to the Prepetition Term Loan Lenders are indefeasibly paid in full, and as such have no value. As described herein, to the extent that the Bankruptcy Court finds that Wellspring’s Claims are subordinate, by agreement or otherwise, such Claims shall be treated as Class 5 Wellspring Subordinated Claims. To the extent that any of Wellspring’s Claims are not found to be subordinate, such Claims shall be General Unsecured Claims.
  • Class 6 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $0 and expected recovery is 0%.

Key Dates:

  • Voting Deadline: October 15, 2019
  • Objection Deadline: October 15, 2019
  • Confirmation Hearing: October 21, 2019

About the Debtors

United Sporting Companies describes itself as "leading the shooting sports industry for 85 years, offering one of the largest product selections in the hunting, shooting, and marine industries. The most knowledgeable sales team in the country supports the broad product offerings of over 85,000 products. Coupled with our best in class distribution facilities, this allows us to provide excellent service to over 30,000 independent retail customers across all 50 states.

 Our product selection includes firearms, reloading, marine electronics, trolling motors, optics, cutlery, archery equipment, ammunition, leather goods, sportsman gifts, and a variety of other outdoor sporting goods products."

SportCo operates its business primarily through Ellett Brothers, LLC, a South Carolina limited liability company and wholly-owned subsidiary of United Sporting Cos. (“Ellett”), and four of Ellett’s six wholly-owned subsidiaries: Evans Sports, Inc., a South Carolina corporation (“Evans”); Jerry’s Sports, Inc., a Delaware corporation (“Jerry’s”), Outdoor Sports Headquarters, Inc., a Delaware corporation (“Outdoor Sports”); and Simmons Gun Specialties, Inc., a Delaware corporation (“Simmons” and, together with Evans, Jerry’s, and Outdoor Sports, the “Operating Subsidiaries”). Ellett’s two remaining wholly-owned subsidiaries, Bonitz Brothers, Inc., a Delaware corporation (“Bonitz”) and Quality Boxes, Inc., a South Carolina corporation (“Quality Boxes” and, together with Bonitz, the “Non-Operating Subsidiaries”), ceased operations prior to the Petition Date.

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