Switch Beverage gets Debtor-in-Possession Financing

December – Switch Beverage Co. may be able to pop the cork on its debtor-in-possession financing, but its plans for an asset sale remain on ice.

Chief Judge Douglas O. Tice Jr. of the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond submitted a final order on the DIP on Tuesday, Dec. 6.

Tice’s ruling came after a Friday, Dec. 2, hearing on the financing and a weekend of negotiations between Switch and its creditors.

The final commitment represents a $35,000 increase from Switch’s original request of $500,000.

The DIP is a term loan being provided by LKCM Investment Partnership LP, which is also the company’s largest unsecured creditor, with a $700,000 claim. In addition, LKCM occupies one of three seats on Switch’s board of directors.

The DIP is priced at 10% a year, though that rate jumps by 4% should Switch default. The loan will mature on Jan. 24 unless someone other than the stalking-horse bidder wins the company. Should that happen, the DIP will mature on Feb. 7, filings show.

There is only a fee of up to $25,000 attached to the DIP, related to administrative expenses such as professional fees. An $85,000 carve-out is included.

Still to be heard in court are the bidding procedures for a possible sale to a LKCM affiliate termed Beverage Acquisition LLC.

The affiliate had agreed to be Switch’s stalking-horse bidder, with a $750,000 offer.

That proposition has brought on the ire of a group of so-called select equity holders, led by co-founder and CEO William Hargis Jr., who have claimed the company is worth much more.

“The debtor, led by LKCM, has conducted this case in a manner designed to deprive interested parties and potential bidders of notice and to chill the bid process to assure that [the bidder] acquires the company for far less than actual value,” the equity holders claim.

They also attest that six weeks prior to Switch’s filing, the company received a term sheet from investment firm Dogwood Equity offering to buy 51% of the company for $6 million, court papers said.

To date, no order has been submitted by the court concerning the bidding procedures. According to Augustus Epps Jr., counsel to the unsecured creditors at Christian & Barton LLP, the parties have agreed to push the sale hearing date back to Jan. 23. The buyer had originally stipulated that a sale hearing must occur by Jan. 9.

Neither debtor counsel at Wiley Rein & Fielding LLP nor counsel to the equity group at Cantor Arkema PC were available for comment Wednesday.

According to a report from the Richmond Times-Dispatch, a settlement was reached allowing a third party to market the assets, and permitting creditors, including the equity group, to determine how the assets will be auctioned.

Switch attempted to create a niche through a healthier alternative to soda, initiating the “carbonatural” category of beverages through a procedure that carbonates 100% fruit juice. The company markets drinks called the Switch that have no added sugar or preservatives and contain the nutritional value of two daily servings of fruit.

Switch claims that its sales and gross profits have actually increased over the past few years but that its liquidity issues led to its Chapter 11 filing on Nov. 15 at the Richmond court.

At the time it filed, the company had only $25,000 in cash on hand.