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Law360 (May 4, 2020, 4:26 PM EDT) -- Arcade and restaurant chain Dave & Buster's, represented by Paul Weiss, said Monday it plans to raise $100 million in a public offering to help its struggling finances and may have to consider a bankruptcy filing in response to the novel coronavirus outbreak and consequent economic crisis.
Dallas-based Dave & Buster's Entertainment Inc., which closed its nearly 140 locations back in March, said proceeds from the offering would be used to help sustain it during the ongoing economic crisis, which could include repaying debt. While the company's press release on the offering was short, in separate documents filed with the U.S. Securities and Exchange commission the company did not rule out the possibility of entering Ch. 11 proceedings.
"The failure to align our covenants with our levels of revenues, costs and debt outstanding could trigger the acceleration of our debt, foreclosure against collateral securing our debt and possibly a filing of a voluntary petition for relief," the company said.
With its cash on hand and proceeds from its public offering, Dave & Buster's said in SEC filings it expects to sustain itself at least through fiscal year 2020, but cautioned that depends on things such as continued deferred rent payments for its locations.
In April, it was reported that the company was considering selling a stake in itself to an unnamed private equity firm.
Like many entertainment and hospitality companies, Dave & Buster's has been hit hard by the COVID-19 outbreak. The company's stock has lost three quarters of its value since February, falling from $46.40 per share on Feb. 21 to just $11.26 on Monday.
Among other relief measures, Dave & Buster's previously said it was pausing its quarterly dividend and share repurchase program, was temporarily closing its locations across the U.S. and Canada and had furloughed more than 15,000 hourly store employees, according to an April press release.
Additionally, Dave & Buster's said it reduced its store management and corporate staff by nearly 90%, cut earnings for its senior leadership by half and suspended cash compensation to its board of directors for the rest of the year, it said.
In SEC filings, the entertainment company painted a sobering picture of its immediate future in the age of social distancing and said it's unsure whether its actions will be enough.
"Despite our modeling of different cash flow scenarios, we cannot predict when or the manner in which the effects of COVID-19 on our business or operations will change," the company said.
Dave & Buster's said it's affected by several uncertain factors, including continued restrictions on crowds by state and local authorities, consumers possibly being hesitant to visit large venues and the ultimate outcome of its negotiations with landlords and vendors. The company said it's continuing conversations with landlords on reducing and deferring its rent payments.
As of Feb. 2, Dave & Buster's had about $1.2 billion in operating lease liabilities alone, according to unaudited financials it released in a statement last month.
"We can provide no assurance as to the ultimate outcome of our discussions with landlords and other vendors and whether any such counterparty will take legal action against us or our stores," according to SEC documents.
"A more prolonged crisis, including a resurgence of infections following relaxation of mitigation restrictions, will place far greater strains on our liquidity," Dave & Buster's said.
The underwriter for the offering was Jefferies LLC, which has 30 days to buy an additional $15 million of stock, according to the short statement.
A spokesperson for Dave & Buster's declined to comment beyond the company's public statements.
A representative for Jefferies did not immediately respond to a request for further comment.
Dave & Buster's is represented by a Paul Weiss Rifkind Wharton & Garrison LLP team including Robert B. Schumer and Mark S. Bergman.
Jefferies is represented by a Latham & Watkins LLP team including Marc D. Jaffe, Ian D. Schuman, John Slater, Angel A. Marcial and Laura Harper.
--Additional reporting by Benjamin Horney
Update: This story has been updated with additional counsel information.
For a reprint of this article, please contact reprints@law360.com.
