As of June 2020, Suffolk County OTB ("OTB") had been in bankruptcy for 8 years but needed additional financing for improvements to Jake's 58, their Gaming Facility in Islandia, New York. These improvements would allow them to maximize the number of gaming machines operating while still complying with safety measures related to COVID-19, and to expand the facility in the event they were approved for additional gaming machines.
The other challenge facing OTB was that they would have been eligible for a PPP loan of $4 million, but an entity in Bankruptcy was ineligible for a PPP loan and the deadline to apply for a PPP loan was midnight June 30, 2020. If OTB wanted to obtain a PPP loan they needed to exit bankruptcy prior to June 30, 2020 in time to apply and be approved for a PPP loan.
To exit bankruptcy, OTB needed approximately $5 million to pay-off obligations to the creditors committee. The challenge was three-fold. First, banks do not like to lend to an entity that is in bankruptcy. Second, Jake's 58, OTB's largest revenue producer had been closed since May 14, 2020 and lending to an entity that does not have the cash flow to pay the monthly debt service is a non-starter for most banks. And third, as OTB has a casino with slot machines and electronic table games, many banks are not comfortable lending to this industry.
OTB reached out to several commercial banks but was turned down by all of them. OTB was referred to Asset Enhancement Solutions, LLC by one of the banks that turned it down.
Asset Enhancement Solutions, LLC "AES" was retained by OTB on Wednesday, June 17, 2020 with the time sensitive mandate of closing two loans within only 13 days. The goal was to obtain a Bridge Loan of $6 million as soon as possible so that OTB would have enough time to exit bankruptcy and apply for a $4 million PPP loan before the June 30, 2020 deadline.
The only tangible collateral that OTB had to offer a lender was 30 acres of vacant land in Suffolk County. As most lenders do not like to lend against land, this made the transaction even more challenging. AES worked closely with the team at OTB day and night and on weekends to accomplish this tremendous feat. AES prepared the appropriate financing package for lenders and created a Data Room providing lenders with all the historical information and projections necessary for them to quickly underwrite the Bridge Loan. AES reached out to numerous lenders but only identified a few that had interest. The initial conference calls with lenders were conducted on the weekend of June 20th. We had a call at 8 p.m. on Father's Day that went very well. By Wednesday, June 24th the term sheet had been negotiated and signed by OTB. Recognizing that OTB was closed due to COVID and cash flow would be tight, the lender established an interest reserve that was used to pay interest and all expenses related to the transaction. Thus, OTB would not have to outlay cash for interest expense for the foreseeable future.
A few issues arose during the Due Diligence and Closing Process and AES was instrumental in helping resolve these issues. On Monday, June 29th the Creditors Committee's Escrow Account was funded and on Tuesday, June 30th AES received an email at 1:40 p.m. with the order from the judge closing the bankruptcy case. This $6.8 million dollar Bridge Loan closed with 14 days of AES being retained by OTB.
In addition to arranging financing, AES also served as a PPP Loan Agent for several lenders. AES had worked with OTB's Comptroller and submitted OTB's PPP application to a PPP lender the previous week so that there would be enough time to answer questions and provide additional documentation prior to June 30, 2020, the initial termination date of the PPP program. At 1:45pm on the afternoon of June 30th, AES notified the PPP lender that OTB had exited bankruptcy and was now eligible for a PPP loan. The PPP lender approved OTB's $4 million PPP loan that afternoon.
This was one of the most challenging and rewarding series of transactions that AES has been involved with due to the timeline of only 14 days, industry of the client, type of collateral and client's operations being shutdown due to COVID.
To learn more about how we can assist you with your PPP loan, please contact
Neil Seiden, 516-767-0100
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