TRAVELBRANDS INC. – Recent Developments
Late in the week ending June 29, 2015, KPMG Inc. the court appointed monitor in the Companies’ Creditors Arrangement Act proceeding commenced by TravelBrands Inc. filed on the portion of its website dedicated to those proceedings its first report dated June 23, 2015. It also filed a copy of the Motion Record of TravelBrands Inc. returnable on June 24, 2015 for a stay extension of court protection to August 17, 2015 which included the additional affidavit of Joe DeMarinis sworn on June 18, 2015. All three documents are in agreement as to the matters covered in each. Both the Monitor and Joe DeMarinis supported the application for the stay extension of the court protection to August 17, 2015.
We have been advised by a representative of TravelBrands that the court did in fact order an extension to the stay of court protection to August 17, 2015.
The following is a summary of the contents of the Monitor’s Initial Report. We have also added additional information where it is disclosed in either the Court Application or the affidavit of Joe DeMarinis.
Purpose of Report
The purpose of the first report of the monitor is to provide the court with information on the monitor’s activities, an update regarding some of the company’s key stakeholders, the company’s restructuring and proposed sale process, the company’s actual receipts and disbursements for the four week period ended June 12, 2015, the company’s updated cash flow forecast for the period from June 13, 2015 to September 11, 2015, the company’s request for an extension of the stay period until August 17, 2015 and the monitor’s recommendation.
Terms of Reference and Monitor’s Activities
The monitor has relied on unaudited financial information, and books and records provided by the company, and discussions with management and third parties.
The monitor set up a website for the CCAA proceedings www.kpmg.com/ca/Travelbrands where it has posted and will continue to post the monitor’s reports, issued orders and other court materials.
It has mailed a notice to all known creditors of TravelBrands with a claim of more that $1,000 and published a notice in the Globe and Mail twice and posted a list of known creditors with claims of more than $1,000 on the above website.
In addition, the monitor has been reviewing and approving all disbursements of the company before they are made and has established a process to monitor the Company’s operating and trust account balances on a daily basis.
Suppliers and Travel Agents
The Company has been in contact with a large number of suppliers to ensure the continued supply of goods and services to the Company. The company has communicated with key travel agents to advise them of the CCAA proceedings and the Company’s intention to pay all travel agents all outstanding amounts in the normal course.
To date the Company’s suppliers have continued to support the Company through the provision of ongoing travel services. TravelBrands, with the assistance of the monitor has made arrangements with certain key suppliers regarding go-forward supply and payments terms and continues discussions as required to maintain the supply of travel services. As provided in the initial court order, TravelBrands continues to pay its suppliers of travel services supplied to the Company since the date of the initial court order.
In accordance with the initial court order, TravelBrands has continued to pay travel agents in the normal course for services provided before and during the CCAA proceedings in connection with the sale of the Company’s wholesale travel products.
The monitor’s report makes no comment as to the status and the Company’s intentions in respect to other creditors as of the date of the commencement of the CCAA proceedings
Manulife Financial
Manulife underwrites trip cancellation and interruption insurance purchased by TravelBrands customers. The monitor has apparently satisfied Manulife in respect of Manulife’s concerns regarding the CCAA proceeding and Manulife continues to underwrite trip cancellation and interruption insurance for the Company and its customers.
Travel Industry Council of Ontario
TICO has implemented a monitoring regime with the Company in respect to the status and ongoing reporting of the trust accounts maintained to protect the Company’s customers and the ongoing compliance with TICO regulations.
To satisfy TICO’s concerns regarding the trust funds, the Company and monitor have agreed to amend the initial court order to specifically carve out customer trust funds from the property to which certain authorized charges apply.
TravelBrands states that TICO remains supportive of TravelBrands’ restructuring efforts.
International Air Transport Association
On June 16, 2015, IATA advised the monitor and the company that they were currently not in compliance with certain financial criteria required as part of IATA’s billing and settlement plan. This plan provides the Company with an efficient mechanism for the payment of all member airlines. IATA has advised of its requirements to allow the company to become compliant and through its solicitors has indicated that it will allow the company some time to become compliant and will not revoke any of the company’s participation rights in the meantime. Discussions with IATA and their lawyers continue.
Bank of Montreal
The company has a line of credit with BMO for the issuance of letters of credit, a MasterCard facility and a treasury facility. In return for its continued support, the Company has agreed to provide BMO additional weekly and monthly reports, including regular cash flow reports and updates on the company’s restructuring efforts.
UPDATE ON THE RESTRUCTURING AND PROPOSED SALE PROCESS
75 Eglinton Leased Property
On May 29, 2015, the Company delivered a disclaimer notice to the 75 Eglinton landlord.
Mr. DeMarinis advised in his affidavit that the landlord had till June 13, to dispute the disclaimer notice and that the notice was to be effective as of June 29, 2015.
On June 15, 2015 the 75 Eglinton landlord obtained a consent order to give third parties and subtenants certainty that they may deal directly with the landlord in respect of the building. The company had applied for and apparently obtained a vesting order to the effect that all right title and interest of the company in the property, assets and undertaking of TravelBrands located at the 75 Eglinton property will be vested absolutely with the landlord free and clear of any claims.
There, however, appears to be no indication by either party whether or not the landlord has disputed the disclaimer notice within the permitted period of time or whether the lease will in fact be terminated effective June 29, 2015 as per the notice of disclaimer.
Negotiations with Sears
The company has engaged in constructive negotiations with Sears regarding a potential go-forward business arrangement. In support of these negotiations, Sears has agreed to waive the daily amounts accruing due under their agreement with the company during the negotiating period.
Recently, the company put forward the principles of a deal with Sears which Sears is evaluating.
Apparently, the company has not taken any steps to disclaim its agreement with Sears.
Proposed sales process
The monitor advises that the company requires additional time to finalize the proposed structure of of the sales process and the potential of utilizing a stalking horse asset purchase agreement as part of such process. The company expects to return to court in early July to seek approval of the sale process.
CASH FLOW RESULTS
The monitor has included a table summarizing cash receipts and disbursements for the four week period ended June 12, 2015.
In respect to monies held in trust, cash receipts exceeded cash disbursements by $11,928,000.
In respect to operating cash, cash receipts exceeded cash disbursements by $513,000. The closing balance of operating cash on June 12, 2015 was $5,132,000. Senior management explains the greater that forecast operating cash balance is due to supplier payments being lower than forecast, slightly higher accounts receivable and other collections offset by the timing of monies being released from trust.
The company with the assistance of the Monitor has prepared an updated 13 week cash flow forecast for the period from June 13, 2015 to September 11, 2015 which appears as Appendix F to the monitor’s report.
The monitor notes the following in regard to this forecast:
- during the cash flow period, the company will have total receipts (including the $4 million from Red Label)
- of approximately $46.7 million and total disbursements of approximately $43.6 million resulting in net cash flow of approximately $3.2 million.
REQUEST FOR AN EXTENSION OF THE STAY PERIOD
The monitor states that to date the company has been acting in good faith in an effort to further its restructuring efforts and that it supports the company’s motion to extend the stay period to August 17, 2015 for the following reasons:
- the company continues to operate in the normal course;
- the company needs more time to negotiate and agreement with Sears;
- the company needs more time to finalize the sale process, and;
the funding from Red Label remains available to the company although all this money may not be required.
