RNDC asks a bankruptcy judge to clear joint venture sales worth about $50 million

Republic National Distributing Co. has asked a bankruptcy judge in Houston to let its Chapter 11 debtors support the sale of two non-debtor joint ventures in Kentucky and Michigan, transactions the company says could generate about $50 million in net proceeds as it works toward a restructuring.

According to emergency motions filed on Oct. 13 and Oct. 16, the company wants authority for debtor Republic National Distributing Company, LLC to consent to the sale of substantially all of the assets of its Kentucky joint venture to KEG1 River City, LLC, and for debtor Republic National Distributing Company Michigan Holdings, LLC to consent to the sale of the Michigan wine business and the equity of the state’s authorized distribution agent business to Great Lakes Wine & Spirits, Imperial Beverage and Vintage Wine. A hearing on both requests is scheduled for Oct. 22 at 9 a.m. Central Time in bankruptcy court in Houston, at the same session set for final approval of the company’s disclosure statement and confirmation of its reorganization plan.

The filings say the debtors are not asking the court to approve the sales themselves because the assets belong to non-debtor joint ventures, not directly to the bankruptcy estates. Instead, RNDC is seeking approval for the debtors to give the member consents required under the joint venture structures and to perform limited obligations tied to the deals, including restrictive covenants and post-closing transition services.

RNDC, one of the largest wine and spirits distributors in the United States, said the Kentucky sale is expected to produce about $30 million in net proceeds attributable to its 68.75% stake in that venture. The Michigan transaction is expected to produce about $20 million in net proceeds tied to the debtor’s 50% interest, with a possible additional roughly $10 million tied to Indiana joint venture debt, according to the Michigan motion. The company said those figures are estimates and remain subject to supplier consents, closing adjustments and other conditions.

The transactions matter beyond RNDC’s bankruptcy because they would reassign wine and spirits distribution rights in two states at a time when suppliers, wholesalers and retailers are watching closely. Changes in those networks can affect supplier appointments, payments, existing contracts and access to the market for brands that depend on local distributors.

In Kentucky, the target business is Republic National Distributing Company, LLC, a joint venture in which the debtor holds 68.75% and National Wine & Spirits, Inc. holds the rest. RNDC said it had contacted more than 50 potential buyers for operations nationwide before the bankruptcy filing and that 14 parties expressed interest in Kentucky. The company signed a letter of intent in May with Breakthru Beverage Group for an equity sale involving the Kentucky and Indiana joint ventures, but that deal ended after RNDC filed for Chapter 11 on July 26. The Kentucky venture then re-engaged prior bidders and chose KEG1 after receiving three new indications of interest, the filing said.

The Kentucky asset purchase agreement, dated Sept. 25 and executed Sept. 28, covers substantially all of the venture’s business assets, including distribution rights for consenting suppliers, inventory, equipment and real estate. The filing says the purchase price includes a $50,045,341 base for distribution rights, $43 million for owned real property and $6 million for equipment, with additional adjustments for inventory, receivables, prepaid expenses and liabilities. RNDC said its expected proceeds reflect debt repayment, transaction expenses, wind-down costs and the share due to its joint venture partner.

In Michigan, the proposed buyers are dividing the assets. Great Lakes Wine & Spirits, Imperial Beverage and Vintage Wine would buy the Michigan wine business, while Great Lakes would buy the equity of the authorized distribution agent entity and a 50% interest in a Livonia real estate entity, according to the motion. The debtors said the Michigan deal, like the Kentucky sale, requires debtor consent as a condition to closing and also requires limited post-closing support.

Both motions tie the timing to RNDC’s debtor-in-possession financing. The company said its DIP credit agreement requires the plan effective date or the closing of sale transactions for substantially all assets by Oct. 29, unless lenders agree otherwise, and that the facility currently matures on that date. RNDC told the court that, based on projected liquidity, the Kentucky sale must close by the week ending Oct. 30 to maintain minimum cash levels. The filings say DIP lenders support the transactions and have required sale orders for substantially all going-concern transactions by the confirmation date.

A major part of the Kentucky motion is a proposed settlement with Fifth Generation, the supplier of Tito’s Handmade Vodka and Lalo Tequila. RNDC said the supplier’s approval is critical because about $7.8 million of the expected Kentucky purchase price is tied to the venture’s exclusive distribution of Tito’s and Lalo, and KEG1 has also agreed to buy about $1.4 million of related inventory. According to the filing, if Fifth Generation were to appoint another distributor in Kentucky instead of KEG1, RNDC LLC would lose more than $6.3 million in expected net proceeds.

The proposed settlement would pay RNDC $9 million in cash in exchange for a release of claims tied to two Washington state arbitration proceedings over the loss of Tito’s and Lalo distribution rights there. RNDC said it had asserted claims totaling about $23.7 million, including about $22.46 million tied to Tito’s and about $1.24 million tied to Lalo. The company said Fifth Generation disputes the Tito’s claim, while RNDC maintains both terminations were without cause and that it is entitled to compensation under the parties’ agreements and Washington franchise law.

Under the settlement terms described in the motion, Fifth Generation would provide written approval before the Kentucky closing and appoint KEG1 as distributor of record at closing. The supplier would have no obligation to do that, however, if the Kentucky sale does not close by Nov. 9. The agreement also includes payment of $245,513.69 to resolve certain debtor trade payables, payment of proper and undisputed invoices owed to non-debtor affiliates, and a buyback of saleable inventory at laid-in cost if RNDC elects to sell it back.

RNDC said the settlement was negotiated over six weeks and gives the estates more than just the $9 million cash payment. In the filing, the company said the agreement delivers about $18 million in expected aggregate value when the economic benefit of supplier support for the Kentucky and Michigan sales is included. The settlement also addresses Fifth Generation’s position in Michigan by acknowledging the separate authorized distribution agent transaction and allowing the company to continue as distributor of record there in the ordinary course, subject to the supplier’s existing contractual rights.

The debtors also told the court that the buyers require them to provide transition services, especially information technology infrastructure and support, because the joint ventures relied on RNDC systems in the ordinary course. Those services are still being negotiated in Kentucky and may be required in Michigan as well, but the filings say they would end no later than Nov. 30. The Kentucky deal has an outside date of Dec. 1, while the Michigan transaction has an outside date of Dec. 31, according to the motions.