Loot Crate Inc. has filed for Chapter 11 bankruptcy protection, with a company “affiliated with an investment group that includes one of the largest and best-run collectible manufacturers and distributors in the world” providing Debtor-in-Possession financing and acting as a stalking horse bidder, according to court documents provided by Wall Street Journal.
The Chapter 11 filing appears to have been precipitated at least in part by Loot Crate’s credit card processor, Vantiv, which had notified Loot Crate that it planned to cease processing charges Monday. Vantiv feared the potential losses if Loot Crate subscribers requested refunds for Crates not delivered, leaving Vantiv no way to recoup the money it had already forwarded to Loot Crate. Vantiv had also begun withholding money from charges.
As another factor impacting immediate liquidity for Loot Crate, Midtown Madison Management, which had provided $21 million in financing to the company last August, had begun sweeping funds from Loot Crate accounts (permissible under its loan agreement) over the last 10 days.
In addition to debts to lenders, Loot Crate owes over $20 million to its subscribers, who have prepaid their subscriptions but not yet received all their Crates, and $30 million to trade creditors. Loot Crate’s list of unsecured creditors included lenders, t-shirt manufacturers, professional service companies, the occasional licensed products company (Bio World is owed around $1.48 million), some licensing entities (MLB Advanced Media and Marvel Brands, owed $500,000 and $469,000, respectively), and Facebook, which was owed $1.04 million (guess Mark Zuckerberg won’t be able to tip after lunch this week).
Loot Crate said in a statement Monday that the bankruptcy filing will “facilitate” its acquisition by Loot Crate Acquisition LLC, a company formed by Money Chest, which has acquired the Midtown Madison debt and provided additional financing. No clues were provided as to the identity of the Money Chest group. Other bidders will also have an opportunity to come forward, but given that the company had identified 100 possible purchasers, of which only Money Chest had made an acceptable offer, that seems unlikely.
Loot Crate is aggressively cutting expenses (50 employees were recently laid off in its California and Pennsylvania facilities), but expects to continue to operate. “Daily operations will continue as usual, unique and exciting fan items will be purchased, crates will be shipped, and all aspects of the business will go on as before the Chapter 11 filing,” Loot Crate CEO Chris Davis said in a statement. “Our employees will continue to be paid as usual during this transaction.”
Loot Crate had grown from 100,000 subscribers in 2014 (see “Loot Crate Hits 100,000 Subscribers”) to $165 million in annual revenue in 2016 (see “Loot Crate Is Experiencing Big Time Growing Pains”), and raised $18.5 million in investment capital that year (see “Loot Crate Raises $18.5 Million”). In 2018 it began selling Crates in Walmart (see “Walmart to Sell Loot Crate Boxes”).