Enjoy Technology files for Chapter 11 protection

September 2022 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

September 2022 Issue

In June, Enjoy Technology Inc., a retail company established by Ron Johnson, a former executive at Apple and J.C. Penney, filed for Chapter 11 bankruptcy protection at the Bankruptcy Court for the District of Delaware.

According to the filing, the company has $100m to $500m in assets and $10m to $50m in liabilities. In its filing, Enjoy notes that since going public in 2021 through a special purpose acquisition company (SPAC) transaction, it has been unable to achieve profitability due to the ongoing operating costs associated with the development and growth of its platform.

The company says it has received a proposal and signed letter of intent from device insurance company Asurion LLC for a sale of substantially all of its US assets. Asurion has agreed to provide a small prepetition short-term bridge loan of $2.5m and to fund a debtor-in-possession (DIP) facility of $55m, including $52.25m of new money and an interim rollup of the prepetition bridge loan. Enjoy Technology said it expects Asurion’s bid to be enough money to pay back all of its secured and unsecured creditors in full, but it did not mention the outlook for current equity holders.

Enjoy Technologies has noted that there is an imminent need for the DIP financing because of its deteriorating cash position, which is currently insufficient to fund critical expenses, including payroll. Enjoy said it has just $523,000 of cash on hand. Going forward, the company will continue operating throughout the bankruptcy process but will wind down its operations in the UK, eliminating 411 jobs, or about 18 percent of the company’s total workforce.

Enjoy Technology was founded in 2014 and made its public debut via a special purpose acquisition company (SPAC) less than a year ago. The company operates what it calls mobile retail stores that let customers buy smartphones and other technology that they can set up at home. However, in a court filing, a restructuring adviser said Enjoy has struggled with declining liquidity, in part because a large number of SPAC investors took back their money, as well as an ongoing “supply chain crisis” and an inability to retain staff.

Shortly after the company went public, it recorded a peak market valuation of $1.3bn, according to data from Koyfin. After the company’s Chapter 11 filing became public, Enjoy had a market valuation of about $50m, representing a decline of about 96 percent from its peak. The company’s stock did rally, soaring 400 percent the week after its bankruptcy filing, making Enjoy the latest company to experience this trend, after Revlon and Hertz saw their stock jump in similar circumstances.

Prior to the filing, Enjoy’s stock had steadily declined from a high of $11 to as little as $0.21 at the beginning of July. The company began to experience cash flow difficulties early in the year, largely stemming from a short supply of Apple’s latest iPhone products in the second half of 2021. That led to quarterly sales that fell below analyst estimates. The company’s difficulties were exacerbated by the fact that it had recently increased its staffing and warehouse footprint in anticipation of expansion into around 100 new markets.

As a result of its difficulties, the company lost two chief financial officers (CFOs) in two months, with Cal Hoagland, interim CFO, leaving the company on 1 June. In mid-May, the company began a “review of strategic alternatives” and warned that it might not have enough cash to last through June.

Enjoy had ambitions to expand deeper into electronics and had recently launched its ‘Smart Last Mile’ service, which was meant to combine an in-person retail experience with door-to-door delivery. The company has also said there could be opportunities for it in other categories, such as home fitness, beauty and luxury apparel.

Richard Summerfield