================================================================= AMF BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2001 (ISSN XXXX-XXXX) July 5, 2001 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- AMF BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, On an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. Each issue is prepared by Peter A. Chapman, Editor. Subscription rate is US$45 per issue. Reproduction and re-mailing of AMF BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00001] BACKGROUND & DESCRIPTION OF AMF BOWLING WORLDWIDE, INC. [00002] AMF GROUP HOLDINGS'S BALANCE SHEET AT MARCH 31, 2001 [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING [00004] AMF DEBTORS' CHAPTER 11 DATABASE [00005] LIST OF THE AMF DEBTORS' 30 LARGEST UNSECURED CREDITORS [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF PROCEEDINGS [00007] DEBTORS' MOTION FOR PERMISSION TO USE CASH COLLATERAL [00008] DEBTORS' MOTION TO OBTAIN $75,000,000 OF DIP FINANCING KEY DATE CALENDAR ----------------- 07/03/01 Voluntary Petition Date 07/18/01 Deadline for filing Schedules of Assets and Liabilities 07/18/01 Deadline for filing Statement of Financial Affairs 07/18/01 Deadline for filing Lists of Leases and Contracts 07/23/01 Deadline to provide Utilities with adequate assurance 09/01/01 Deadline to make decisions about lease dispositions 10/01/01 Deadline to removal actions pursuant to F.R.B.P. 9027 10/31/01 Expiration of Debtors' Exclusive Plan Proposal Period 12/30/01 Expiration of Debtors' Exclusive Solicitation Period 07/02/03 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00000] HOW TO ORDER A SUBSCRIPTION TO AMF BANKRUPTCY NEWS ----------------------------------------------------------------- AMF BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF AMF BOWLING WORLDWIDE, INC. ----------------------------------------------------------------- AMF Bowling Worldwide, Inc. 8100 AMF Drive Richmond, Virginia 23111 Telephone (804) 730-4000 Fax (804) 559-6276 http://www.amf.com AMF Bowling, Inc. (OTC:AMBW) conducts all of its business through subsidiaries. AMF Bowling Worldwide, Inc. is a wholly owned, direct subsidiary of AMF Group Holdings Inc. AMF Group Holdings, in turn, is a wholly-owned, direct subsidiary of AMF Bowling. AMF Bowling, AMF Group Holdings and Bowling Worldwide are Delaware corporations. AMF Worldwide has two lines of business: (A) Bowling Centers AMF's operates 400 bowling centers in 40 states and Puerto Rico, and 118 international centers in ten countries (Australia, the United Kingdom, Mexico, Japan, Hong Kong, Argentina, Brazil, France, Germany and Spain). AMF Bowling Centers, Inc., the Subsidiary Debtor that operates the 400 bowling centers located in the United States, owns the real estate on which 257 of these bowling centers are operated and leases the real estate for the remaining 143. The Company also manages operations outside of the United States in Australia, Japan, Hong Kong and Spain. Various Foreign Subsidiaries conduct the Bowling Centers business in the United Kingdom, Mexico, Germany, France, Argentina and Brazil and employ the employees that are based in those locations. (B) Bowling Products AMF's bowling products business manufactures and sells: (1) NPCs -- new center packages, which include all of the equipment needed to outfit a new bowling center such as lanes, pinspotting equipment, ball returns and scoring systems; (2) MODs -- modernization equipment used to upgrade existing centers, and (3) consumer products and parts, including bowling balls, bags, shoes and parts and supplies for bowling equipment and centers. In addition to bowling equipment, AMF manufactures and sells billiards tables. The bowling and billiards equipment is manufactured in plants in the United States and sold through a direct sales force, distributors and manufacturer representatives. For most of the last fifteen years, the majority of new bowling center construction has been in international markets. Accordingly, the Bowling Products segment sold most New Center Packages outside of the United States. Bowling Products sells Modernization Equipment and consumer products and parts both in the United States and abroad.3 For the year ended December 31, 2000, on a consolidated basis, AMF reported revenue of approximately $715 million. Bowling Centers' operating revenue decreased by approximately $5.3 million, or 0.9%, compared with fiscal year 1999 results. U.S. bowling center revenue increased approximately $5.7 million, or 1.2%, and international bowling center revenue, substantially impacted by negative trends in foreign currency exchange rates, decreased approximately $11.0 million, or 8.8%. In fiscal year 2000, bowling, food and beverage and ancillary revenue represented 58.0%, 27.5% and 14.5% of total Bowling Centers revenue, respectively. Bowling Products has three primary sources of revenue: (1) NCP sales; (2) MOD sales; and (3) consumer products sales. Bowling Products' operating revenue decreased in fiscal year 2000 by approximately $18.0 million, or 10.6%, compared with fiscal year 1999 results. This decline is composed of decreases of $8.6 million, or 16.3%, in NCP revenue, and approximately $9.4 million, or 8.1%, in MOD and consumer products revenue. The absence of a strong NCP market, such as Korea, Taiwan and China in prior years, and increased competition in general continue to adversely impact results. Sales to North American customers decreased. In Europe, NCP and MOD sales improved and more than offset a decrease in consumer product sales in that region. AMF was acquired in 1996 by an investor group led by affiliates of Goldman, Sachs & Co. That Acquisition transaction was financed with a highly leveraged capital structure. AMF acquired an aggregate of 280 bowling centers for a combined purchase price of approximately $507.4 million, which was funded by a combination of debt and equity financing. As a result, as of June 2001, the Debtors have approximately $1.3 billion of liabilities. Both Bowling Products and Bowling Centers are subject to intense competition. Although AMF is one of two major providers of a full line of bowling equipment and products, there are numerous competitors who manufacture and sell selected bowling equipment and products. Bowling Centers' competition includes not only other bowling centers, but also purveyors of numerous other leisure activities. Accordingly, competition from other suppliers and the availability and affordability of sports, recreational and entertainment alternatives has reduced AMF's ability to generate the cash flow necessary to sustain its highly leveraged capital structure. The significant decline in demand from international markets for AMF Products has further contributed to AMF's reduced cash flow. In addition to importation issues that make it difficult for NCPs to compete against local manufacturers in China, no international market has emerged with the strong demand for NCPs experienced in Asia Pacific in the early and mid 1990's, and the limited availability of financing for customers seeking to build new centers has had an adverse impact on AMF Products. AMF determined that the continued viability of their businesses requires a restructuring of their highly leveraged capital structure. In May 2000, the Debtors retained The Blackstone Group as their financial advisors to assist them in restructuring AMF. Thereafter Blackstone and the Company began meeting with two creditor constituents, a Steering Committee consisting of a core group of the Prepetition Lenders, which consisted of holders of a majority of the indebtedness under the Prepetition Credit Facility, and an Informal Committee whose members hold a majority of the Bonds. At that time, AMF's goal was to prepare and file a "prenegotiated" plan of reorganization under chapter 11 of the Bankruptcy Code and emerge from chapter 11 as quickly as possible. In August 2000, the Prepetition Lenders agreed to amend the Prepetition Credit Facility to waive the Company's compliance with the financial covenants in the Prepetition Credit Facility through December 31, 2000. That Amendment further provided for the permanent termination of an aggregate of $100 million of the otherwise available working capital commitments under the Prepetition Credit Facility and that the Company would forbear from making its September 15, 2000 interest payment of approximately $13.6 million due on the Senior Subordinated Notes. As this payment was not made within the 30-day cure period, this failure constituted an Event of Default as of October 15, 2000 under the Bonds. Under the terms of the Prepetition Credit Facility Amendment, on or about September 30, 2000, AMF presented the Prepetition Lenders with a preliminary plan to restructure their debt and a timeline for implementation of such preliminary plan. A majority of the Prepetition Lenders indicated that the preliminary restructuring plan proposed by the Debtors was generally satisfactory in form and substance, subject to further approval of any definitive plan. The waiver expired on December 31, 2000 and the Debtors failed to make a scheduled principal payment of approximately $12.8 million due under the Prepetition Credit Facility. AMF did pay $3.0 million of the approximately $14.7 million of interest then due on its bank debt on December 29, 2000. The remainder of the $14.7 million of interest (at a non- default interest rate) due was paid on a weekly schedule during the first quarter of 2001. Accordingly, the Prepetition Lenders asserted that interest on the Debtors' obligations under the Prepetition Credit Facility has accrued and is accruing at the default rate. Subsequently, the Company failed to make the required cash interest payment of approximately $13.6 million due under the Senior Subordinated Notes on March 15, 2001. In addition, although WINC did not make a scheduled principal payment due under the Prepetition Credit Facility of approximately $12.8 million, which was due on March 30, 2001, it did make an approximately $16.4 million interest payment due under the Prepetition Credit Facility on March 30, 2001. This payment represented interest at the non-default interest rate and was approximately $2.8 million less than the interest would have been if at the default rate. Notwithstanding these defaults, neither the obligations under the Prepetition Credit Facility nor the Bonds have been accelerated. On April 30, 2001, May 22, 2001, May 29, 2001, and May 30, 2001, respectively, the Debtors made default-rate interest payments to the Prepetition Lenders equaling approximately $16.9 million in the aggregate. By these payments, the Company was able to "catch up" on all of the default-rate interest, which had accrued through May 30, 2001 under the Prepetition Credit Facility. When restructuring discussions commenced in the summer of 2000, between and among the Debtors and the Steering Committee, the Debtors intended to (i) restructure AMF's capital structure so as to reduce its debt load, (ii) refinance the Company's obligations under the Prepetition Credit Facility, such that each of the Prepetition Lenders would be paid in full, and (iii) satisfy the Company's obligations under the Bonds by distributing substantially all of the common stock of Reorganized AMF to holders of the Bonds. While AMF was initially hopeful that such a plan could be implemented, due to a downturn in the economy and poor capital and financing market conditions, neither traditional bank lenders, high-yield lenders nor mezzanine lenders would agree to refinance in full the Prepetition Credit Facility. As negotiations between the Debtors and their major creditors progressed, Bowling Products' revenue continued to decline as new markets for NCPs failed to emerge and Bowling Products' customers became increasingly wary of purchasing equipment from AMF in the midst of its now very public financial problems. As a result of the further erosion of Bowling Products' business and the continued lull in the refinancing markets, with the help of their advisors, the Debtors began to reopen discussions with the Restructuring Committees to try to formulate a restructuring plan that was consistent with the refinancing market and the condition of their business. In May 2001, the Debtors and the Prepetition Lenders reached an agreement in principal with respect to the primary terms of the Plan of Reorganization. The goal of these chapter 11 filings is to unveil that Plan of Reorganization, solicit creditors' acceptances of that Plan and prosecute that Plan to confirmation. "AMF has been and remains a viable business enterprise that generates substantial cash flow from operations," Stephen E. Hare, Executive Vice President, Chief Financial Officer and Treasurer for AMF Bowling Worldwide, Inc., says. "Notwithstanding the liquidity problems that the Debtors have encountered because of their highly leveraged capital structure, the Debtors believe that their business strategy and future prospects remain fundamentally sound," Mr. Hare continues. ----------------------------------------------------------------- [00002] AMF GROUP HOLDINGS'S BALANCE SHEET AT MARCH 31, 2001 ----------------------------------------------------------------- AMF GROUP HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS At March 31, 2001 Assets ------ Current assets: Cash and cash equivalents $42,900,000 Accounts and notes receivable, net of allowance for doubtful accounts of $8,427,000 43,516,000 Inventories 51,014,000 Other current assets 13,937,000 -------------- Total current assets 151,367,000 Property and equipment, net 727,649,000 Other assets 63,590,000 Goodwill, net 740,069,000 -------------- Total assets $1,682,675,000 ============== Liabilities and Stockholder's Equity ------------------------------------ Current liabilities: Accounts payable $22,906,000 Accrued expenses 92,195,000 Current portion of long-term debt 1,144,062,000 ------------- Total current liabilities 1,259,163,000 Other long-term liabilities 6,446,000 ------------- Total liabilities 1,265,609,000 ------------- Stockholder's equity: Common stock - Paid-in capital 1,047,529,000 Retained deficit (594,264,000) Accumulated other comprehensive loss (36,199,000) -------------- Total stockholder's equity 417,066,000 -------------- Total liabilities and stockholder's equity $1,682,675,000 ============== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING ----------------------------------------------------------------- RICHMOND, Virginia -- July 3, 2001 -- AMF Bowling Worldwide and its U.S. subsidiaries today filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filings, in Richmond, Virginia, will enable AMF to maintain ordinary course operations while it finalizes and implements a reorganization plan to significantly reduce its long-term debt and interest expense. AMF announced in April that it would likely take this action in order to facilitate an orderly financial restructuring. The company has reached an agreement in principle with the steering committee of its senior lenders on a new capital structure and the terms of a plan of reorganization. AMF expects to submit this plan and a disclosure statement in early August after the approval of the agreement in principle by the requisite majority of its senior lenders. The plan of reorganization will reduce outstanding debt and provide improved financial flexibility for AMF. Debtor-in-Possession Financing Arranged Members of AMF's current senior lending group have agreed to provide the company with a $75 million debtor-in-possession financing facility, subject to court approval that is expected later today. These funds will be available to supplement the company's operating cash flow for funding business operations, including payment under normal terms to suppliers and vendors for all goods and services that are provided to the company during Chapter 11. AMF Conducting Business in the Ordinary Course Roland Smith, AMF's President and Chief Executive Officer, noted that the court filing is not expected to have any significant impact on AMF's day-to-day operations: "We will continue welcoming customers at our bowling centers, and we will continue to make and sell our bowling products. While the refinancing will be an important step towards a more successful future, our primary focus will continue to be our customers and their satisfaction with our products and services." All 518 of the company's bowling centers around the world remain open and will be conducting normal business operations. League play and all other activities at the bowling centers, such as corporate parties and special promotions, will continue as planned. All three of the company's manufacturing facilities are open and will operate on regular schedules. Proposed Reorganization Plan Under the terms of the plan to which AMF and the steering committee of senior lenders have agreed in principle, the senior lenders will receive a combination of cash, debt and common stock of the reorganized company. Based on a hypothetical reorganization value of $700 million, these distributions will provide payment in full to the senior lenders for their secured claims of approximately $625 million. Unsecured creditors will receive the remainder of the reorganized company's common stock, as well as warrants to purchase additional shares. The reorganized company will implement a management stock option program tied to the company's future performance. AMF Bowling Worldwide will not make a distribution to AMF Bowling, Inc., the parent company. As a result, while AMF Bowling, Inc. has not yet filed for Chapter 11 protection, it is expected that the common stock and the zero coupon convertible debentures of AMF Bowling, Inc. will ultimately be cancelled. The details of AMF Bowling Worldwide's proposed capital structure will be contained in a plan of reorganization and a disclosure statement that the company expects to file with the court in early August. The plan and the disclosure statement are subject to the approval of the creditors and the bankruptcy court. "We have negotiated a plan of reorganization with the bank group steering committee that will position AMF for long-term success," said Smith. "We intend to use this court-supervised process to implement a plan of reorganization that reduces our long-term debt and interest expense and allows us to redirect our operating cash flow toward more productive uses. At the same time, we will continue to implement our strategic business plan, which is focused on improving operations in the future." Strategic Changes Continue at AMF "Over the past year, we have implemented a number of actions to strengthen AMF's business operations and enhance financial performance," said Smith. "While AMF continues to generate positive cash flow from operations, today's court filing is a necessary step in the refinancing process to make AMF a stronger, financially sound company in the years to come." During the past year, AMF has made a number of strategic personnel and organizational changes in both its Centers and Products businesses. These changes included initiatives that streamlined the U.S. Bowling Centers' organization and instituted a new operating model focused on the bowling center manager. In conjunction with this model, the company created new training schools for center and facility managers and also established new performance-based compensation and benefits programs for center managers and staff. John Suddarth, the new Chief Operating Officer for Bowling Products, began implementation of organizational changes in May to reduce costs and improve both product quality and customer service. Upon completion of the operational turnaround currently underway, the company believes that its Products business will be positioned to deliver improved results. Mr. Smith emphasized that AMF remains committed to long-term growth of its business in the U.S. and its global markets: "Bowling is fundamentally a good business. With almost 54 million Americans bowling at least once last year, it is the largest participatory sport in the U.S. Around the world, we estimate that over 100 million people in 90 countries went bowling last year." AMF As the largest bowling company in the world, AMF owns and operates 518 bowling centers worldwide, with 400 centers in the U.S. and 118 centers in ten other countries. AMF is also a world leader in the manufacturing and marketing of bowling products. In addition, the company manufactures and sells the PlayMaster, Highland and Renaissance brands of billiards tables. Additional information about AMF is available on the Internet at http://www.amf.com, as well as on a new toll-free AMF Refinancing Hot Line at 866-743-2625. ----------------------------------------------------------------- [00004] AMF DEBTORS' CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead Debtor: AMF Bowling Worldwide, Inc. 8100 AMF Drive Mechanicsville, VA 23111 Debtor affiliates filing separate chapter 11 petitions: AMF Group Holdings Inc. AMF Bowling Worldwide, Inc. AMF Bowling Holdings Inc. AMF Bowling Products, Inc. AMF Bowling Centers Holdings Inc. AMF Worldwide Bowling Centers Holdings Inc. AMF Bowling Centers, Inc. AMF Beverage Company of Oregon, Inc. AMF Beverage Company of W.VA, Inc. Bush River Corporation King Louie Lenexa, Inc. 300, Inc. American Recreation Centers, Inc. Michael Jordan Golf Company, Inc. MJG - O'Hare, Inc. AMF Bowling Centers (Aust.) International Inc AMF Bowling Centers (Hong Kong) International Inc. AMF Bowling Centers International Inc., AMF BCO-UK One, Inc. AMF BCO-UK Two, Inc. AMF BCO-France One, Inc. AMF BCO-France Two, Inc. AMF Bowling Centers Spain Inc. AMF Bowling Mexico Holding, Inc. Boliches AMF, Inc. Chapter 11 Petition Date: July 3, 2001 Court: United States Bankruptcy Court Eastern District of Virginia 1100 E. Main Street, Suite 310 Richmond, VA 23219-3515 (804) 916-2400 Judge: The Honorable Douglas O. Tice, Jr. Bankruptcy Case Nos.: 01-61119 through 01-61143, inclusive Debtors' Lead Counsel: Marc Abrams, Esq. Michael Kelly, Esq. Rachel C. Strickland, Esq. Theresa A. Fox, Esq. Kevin Clark, Esq. Theodore Whitehouse, Esq. Andrew Thomas, Esq. WILLKIE, FARR & GALLAGHER 787 Seventh Avenue New York, NY 10019 (212) 728-8000 Debtors' Local Counsel: H. Slayton Dabney, Jr., Esq. Dion W. Hayes, Esq. John H. Maddock, III, Esq. Erin E. McDonald, Esq. Douglas M. Foley, Esq. MCGUIREWOODS LLP One James Center 901 East Cary Street Richmond, VA 23219 (804) 775-1000 Debtors' Special Corporate Counsel: Richard D. Feintuch, Esq. Mitchell S. Presser, Esq. WACHTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, NY 10019 Debtors' Financial Advisor: Arthur B. Newman The Blackstone Group L.P. 345 Park Avenue, 31st Floor New York, NY 10154 Debtors' Auditors and Accountants: Richard C. McCullough, Jr. Arthur Andersen LLP 1051 East Cary Street, Suite 800 Richmond, VA 23219 United States Trustee: B. Amon James, Esq. Acting Assistant U.S. Trustee Office of the United States Trustee 11 South Twelfth Street, Second Floor Richmond, VA 23219 (804) 771-8004 ----------------------------------------------------------------- [00005] LIST OF THE AMF DEBTORS' 30 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ Firstar of Minnesota, N.A. Publicly Held $277,000,000 Attn: Mr. Frank Leslie Debt Indenture Trustee 101 East Fifth Street St. Paul, MN 55101-1860 Tel: 651-229-2600 Fax: 651-229-6415 The Bank of New York Publicly Held $250,000,000 Attn: Giovanni Barris Debt Indenture Trustee 101 Barclay St. -21W New York, NY 10286 Tel: 212-815-5084 Fax: 212-815-5915 Bernal Investments Trade $834,862 Attn: Marty Echen 11875 Dublin Boulevard Suite B138 Dublin, CA 94568 Tel: 510-828-4166 Fax: 510-828-4168 New England Plastics Trade $597,780 Attn: Tony Trembley 310 Salem Street Woburn, MA 01801 Tel: 781-933-6004 Fax: 781-933-2726 Columbia 300, Inc. Trade $478,817 Attn: Tony Frankowiac P.O. Box 13430 5005 West Avenue San Antonio, TX 78213 Tel: 800-531-5540 Fax: 210-344-0479 Malet Realty, LTD Trade $450,000 Attn: Saul A. Scherl Marina City Hotel Enterprises 900 W. Jackson Boulevard, #4-W Chicago, IL 60607 Tel: 312-243-5353 Fax: 312-243-0080 Sysco Corporation Trade $400,000 Attn: Dean Ramos 1390 Enclave Parkway Houston, TX 77077 Tel: 281-584-1447 Fax: 281-584-1447 Ron Dobin Litigation $400,000 Wohl, Sammis, Christian & Perkins Attn: Christopher Wohl, Esq. 1006 4 th St. 4 th floor Sacramento, CA 95814 Tel: 916-446-2000 Fax: 916-447-6400 KBC Bank Litigation $350,000 Attn: Jan De Lat Ms. Inge Jonkers Eiermarkt 20 2000 Antwerpen Belgium Tel: 011-32-14-21-14-21 Fax: 011-32-14-21-32-72 Morich Enterprises, Inc. Trade $259,487 Attn: Rich Saddles P.O. Box 1836 Grafton, VA 23692 Tel: 757-868 6800 Fax: 757-868-9317 Centimark Corporation Trade $234,351 Temperature Masters Trade $180,000 Peak Contracting Trade $155,156 FAME/SFX Royalties $130,260 The Delco Group, LTD. Trade $129,579 Coca Cola Fountain Trade $123,000 Engineering Dev. Lab, Inc. Trade $114,856 Birdcage Properties, LP Trade $107,000 Stahl's Seventys Trade $104,720 Mack Lane Service Trade $95,690 Tempest Mechanical Trade $93,200 Contractors Riggs Plaza Shopping Cntr Trade $77,700 NXT Bowler Trade $77,390 Piece Management Trade $73,674 Boise Cascade Trade $71,721 Dynaire Service Trade $70,486 Corporation Chicago Miniature Lamp, Trade $64,480 Inc Air Specialists, Inc Trade $60,871 Hub City, Inc Trade $53,034 New England Mechanical Trade $51,080 Serv. ----------------------------------------------------------------- [00006] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF PROCEEDINGS ----------------------------------------------------------------- AMF Bowling, Inc. ("BINC"), a non-debtor, is the parent of AMF Group Holdings Inc. ("Holdings"). The common stock of BINC is publicly traded on the Over-the-Counter market. Holdings, the parent Debtor, owns all of the issued and outstanding common stock of AMF Bowling Worldwide, Inc. ("WINC"). Holdings has no employees, conducts no operations and holds no assets other than investments in WINC. WINC owes approximately $527 million under two series of Bonds and WINC owes approximately $614.1 million under the Prepetition Credit Facility. The Subsidiary Debtors are also guarantors of the Bonds and the Prepetition Credit Facility. By this motion, the Debtors ask Judge Tice to direct, pursuant to Rule 1015 of the Federal Rules of Bankruptcy Procedure, that the Debtors' chapter 11 cases be consolidated for procedural purposes. Dion W. Hayes, Esq., at McGuireWoods LLP, suggests it would be far more practical and expedient for the administration of these 25 chapter 11 cases if the Court were to authorize their joint administration. The Debtors envision that many of the motions, hearings and other matters involved in these chapter 11 cases will affect all of the Debtors. Consequently, joint administration will reduce costs and facilitate a more efficient administrative process, unencumbered by the procedural problems otherwise attendant to the administration of 25 separate chapter 11 cases. Agreeing with the Debtors' assessment at the First Day Hearing, Judge Tice directs that, for procedural purposes only, the Debtors' chapter 11 cases will be jointly administered. All pleadings and papers filed in these cases shall be captioned: IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA In re ) Chapter 11 Cases ) AMF BOWLING WORLDWIDE, INC., et al., ) Case No. 01-61119 (T) ) Debtors. ) Jointly Administered Further, Judge Tice makes it clear that his Order neither contemplates a substantive consolidation of the Debtors' estates nor prejudices the right of any party-in-interest to seek a substantive consolidation of the Debtors' estates. ----------------------------------------------------------------- [00007] DEBTORS' MOTION FOR PERMISSION TO USE CASH COLLATERAL ----------------------------------------------------------------- At the First Day Hearing, Stephen E. Hare, serving as Executive Vice President of AMF Bowling Worldwide, Inc., and as its Chief Financial Officer and Treasurer since May 1996, stepped Judge Tice through the maze of the Debtors' capital structure: AMF Group Holdings Inc. ("Holdings"), the parent Debtor, owns all of the issued and outstanding common stock of AMF Bowling Worldwide, Inc. ("WINC"). The Prepetition Credit Agreement WINC owes approximately $614,100,000 under the Fourth Amended and Restated Credit Agreement, dated as of June 14, 1999, as amended. The Prepetition Credit Facility was provided to WINC by a syndicate of banks led by Goldman Sachs Credit Partners, L.P. and Citicorp Securities, Inc., as arrangers, Goldman Sachs Credit Partners, L.P., as syndication agent, and Citibank, N.A., as administrative agent. The Prepetition Credit Facility consists of approximately: $249,000,000 of working capital advances under a revolving line of credit (excluding $8,500,000 of issued and undrawn standby letters of credit); 52,500,000 on account of a Term Loan; 181,500,000 for an Amortization Extended Loan Series A; and 131,100,000 for an Amortization Extended Loan Series B. ------------ $614,100,000 The indebtedness under the Prepetition Credit Facility is guaranteed by Holdings and the Subsidiary Debtors and is secured by liens on (i) certain personal property, including inventory, accounts receivable, equipment and general intangibles; (ii) the capital stock of WINC and the Subsidiary Debtors; (iii) 66% of the capital stock of certain of WINC's first-tier Foreign Subsidiaries; (iv) certain fee property and leased property of Subsidiary Debtors located in the United States (v) certain improvements and appurtenances on the fee property and leased property in the United States, and (vi) certain rents in the United States. The Missouri Mortgage WINC is indebted under a $2,000,000 note and purchase money mortgage granted in connection with the purchase of a bowling center in Independence, Missouri pursuant to a Contract of Deed, dated on or around September 30, 1988, as amended by a certain Collection Agreement, dated April 15, 1992. In 1990, King Louie Bowling Corporation, an original party under the Contract for Deed, assigned its interest to AMF Bowling Centers, Inc., a subsidiary of WINC. The Hughes Equipment and Services Agreement AMF Bowling Centers, Inc. is indebted under that certain Equipment and Services Agreement dated June 22, 2000, by and between Hughes Network Systems and AMF Bowling Centers, Inc. The Hughes Lease represents a capitalized lease related to the purchase of AMF Centers' satellite communication system. As of June 1, 2001, Bowling Centers owed a principal balance of approximately $1,100,000 under the Hughes Lease. The Bonds WINC owes approximately $527,000,000 under two series of prepetition publicly traded senior subordinated notes. These Bond obligations consist of WINC's Senior Subordinated Notes and WINC's Senior Subordinated Discount Notes. WINC owes an aggregate of approximately $250,000,000 in principal and approximately $28,700,000 in accrued interest (including approximately $1,500,000 of defunct interest) under the Senior Subordinated Notes. Additionally, WINC owes an aggregate amount of approximately $277,000,000 in fully accreted principal and approximately $7,100,000 of accrued interest under the Senior Subordinated Discount Notes. The Bonds are unsecured obligations of WINC, which are subordinated in right of payment to all Prepetition Credit Facility Obligations and rank pari passu with all subordinated debt of WINC. The Bonds are jointly and severally guaranteed on a senior subordinated basis by Holdings and the Subsidiary Debtors. The guarantees of the Bonds are subordinated to the guarantees of the Prepetition Credit Facility, the Missouri Mortgage and the Hughes Lease. * * * As of the Petition Date, the Debtors collectively have about $5,000,000 of available cash. A material portion of that cash is pledged to the Prepetition Lenders to secure repayment of amounts owed under the Prepetition Credit Agreement. The Debtors need access to that Cash Collateral to fund their day-to-day operations, including the payment of wages and other employee benefits and the acquisition of raw materials, goods, and services that are essential to the continued operation of the Debtors' businesses. Unless the Court authorizes use of the Lenders' Cash Collateral, the Debtors may be unable to meet their payroll this week, Mr. Hare warned Judge Tice. Moreover, Mr. Hare indicated, entry of a consensual Cash Collateral Order is a prerequisite to obtaining any post-petition financing. Unless the Court signs-off on a Cash Collateral Order immediately, Mr. Hare suggests, AMF may as well begin a shutdown today. Prior to the Petition Date, the Debtors sat down with the Prepetition Lenders and hammered-out acceptable terms and conditions under which AMF may use any Cash Collateral in exchange for AMF's agreement to adequately protect the Prepetition Lenders from any diminution in the value of their interests that occurs as a result of the (i) Debtors' use of Cash Collateral, (ii) priming liens and security interests granted to Citibank for the benefit of the DIP Lenders pursuant to this Order and the DIP Facility, (iii) postpetition transfers of cash between and among the Debtors and their affiliates, (iv) Debtors' use, sale or lease of the Prepetition Lenders' collateral other than Cash Collateral, and (v) imposition of the automatic stay. That adequate protection package provides for rolling the Prepetition Lenders' claims, to the extent the Debtors use Cash Collateral, into DIP Facility and securing the Debtors repayment obligations by the superpriority liens granted to the DIP Lenders under the DIP Facility. It is obvious to the Court that AMF's access to the Prepetition Lenders' Cash Collateral is crucial to the Debtors' ability to maintain its operations and avoid immediate and irreparable harm to the Debtors' estates. The consensual Cash Collateral Order is approved, Judge Tice ruled. To the extent that the Debtors use the Prepetition Lenders' Cash Collateral, the Prepetition Lenders receive dollar-for-dollar superpriority replacement liens and administrative claim priority status. ----------------------------------------------------------------- [00008] DEBTORS' MOTION TO OBTAIN $75,000,000 OF DIP FINANCING ----------------------------------------------------------------- The Debtors' $5,000,000 of cash on hand, collections on prepetition accounts receivable created by the sale of inventory, and Bowling Center receipts won't be sufficient to fund all of AMF's post-petition working capital needs, Stephen E. Hare, AMF Bowling Worldwide, Inc.'s Executive Vice President, Chief Financial Officer and Treasurer, tells Judge Tice. The Debtors require additional liquidity. In fact, Mr. Hare says, AMF anticipate a brief and predictable cash flow decline for a 3-4 month period beginning in the summer in which receipts may be less than operating disbursements, reflecting the fact that (i) AMF Centers' customers historically turn to outdoor pursuits during the summer months, (ii) AMF Products builds up its inventory levels in anticipation of the Summer MOD selling season in the United States, and (iii) Bowling Centers expends a significant portion of its budget on capital expenditures during this traditionally slower period. The Debtors have determined, in the exercise of their sound business judgment, that a debtor in possession credit facility allowing them to obtain up to $75,000,000 million in new working capital is necessary. While actual borrowing needs under the DIP Facility are projected to peak at approximately $18,600,000 million, a $75,000,000 million facility, Mr. Hare suggests, will instill confidence in customers and trade vendors and, therefore, support the Debtors' ability to generate future cash flow through continued sales. Prior to the commencement of these chapter 11 cases, Mr. Hare relates, AMF solicited postpetition financing from various financial institutions, other than Citibank. Due to Citibank's knowledge of the Debtors' businesses and that of the Prepetition Lenders, the fact that a substantial portion of the Debtors' prepetition working capital assets are encumbered by liens held by or on behalf of the Prepetition Lenders, the need for expeditious relief, the magnitude of the proposed financing, the extent and value of the Prepetition Lenders' collateral relative to the amount of debt, and the "prenegotiated" Plan that has been agreed upon, the Debtors ultimately concluded that it was in their best interests to seek debtor in possession financing from Citibank and certain other of the Prepetition Lenders. Nevertheless, the Debtors made inquiries with two other prospective lenders, each of which is a major financial institution providing chapter 11 financing to assure that postpetition financing was obtained on competitive terms, which reflect current market conditions. Discussions with these Major Institutions confirmed that the Debtors would be unable to obtain financing by merely offering such lenders an administrative expense claim or a junior lien. Rather, the proposed lenders were not comfortable moving forward with a loan that included a non-consensual priming of the Prepetition Lenders. Put differently, the Major Institutions generally were not willing to entertain the possibility of extending financing to the Debtors in a manner hostile to the Prepetition Lenders. Consequently, the Debtors focused their efforts on Citibank and engaged in extensive negotiations with it to obtain competitive terms, which reflected current market conditions for the Debtors' postpetition financing. Ultimately, the Debtors were able to secure a commitment from Citibank to arrange a debtor in possession financing facility that offers the Debtors appropriate levels of borrowing and competitive terms and conditions, including pricing. Citibank's proposal was the most attractive in terms of fees and rates and the Debtors strongly believe that the proposal negotiated with Citibank was the best financing available. By this Motion, the Debtors seek entry of an order: (A) approving, on an interim basis, the terms of a $75,000,000 Senior Secured Priming Debtor-In-Possession Credit Agreement dated July [__] 2001; (B) granting AMF immediate authority to borrow up to $25,000,000; and (C) scheduling a final hearing to consider entry of a final order approving the financing pact and giving AMF access to the full $75,000,000 available under the DIP Facility. It is essential to AMF's businesses that the Company obtain postpetition financing. Marc Abrams, Esq., at Willkie Farr & Gallagher, told Judge Tice that Arthur B. Newman at The Blackstone Group, L.P. is prepared to testify that he worked with AMF to prepare detailed projections showing the Debtors' proposed cash expenditures and expected cash receipts. Under these projections, the Debtors cannot meet their ongoing postpetition obligations if they are not given access to Cash Collateral of the Prepetition Senior Lenders. In addition, although there will be a sustained period where cash flow from operations will be adequate to support daily cash requirements, postpetition financing will enable the Debtors to (i) increase their available financial resources, (ii) engender confidence in their vendors such that the Debtors are able to purchase goods and services on normal trade terms, (iii) fund the operations of certain Subsidiary Debtors during the summer months when such operations generate lower cash flow, (iv) fund the payments set forth in their first day orders, and (v) pay non-default rate interest under the Prepetition Credit Facility. Indeed, Mr. Hare stresses, absent immediate relief, the Debtors believe they will be unable to maintain uninterrupted business operations. Under the Senior Secured Priming Debtor-In-Possession Credit Agreement dated as of July [_], 2001, AMF Bowling Worldwide, Inc., is the Borrower. WINC's obligations to repay amounts borrowed under the DIP Facility are guaranteed by AMF Group Holdings Inc., and each of the Debtor Subsidiaries. The loan package consists of a non-amortizing revolving credit facility in an aggregate principal amount of up to $75,000,000, with a $15,000,000 sublimit for letters of credit to be issued thereunder. Citibank, N.A., serves as Collateral Agent and Administrative Agent for a syndicate of Initial Lenders: * Citibank, N.A. * Bank of Scotland * Farallon Capital Partners, L.P. * Farallon Capital Institutional Partners, L.P. * Farallon Capital Institutional Partners II, L.P. * Farallon Capital Institutional Partners III, L.P. * RR Capital Partners, L.P. * Foothill Capital Corporation * SSF Investments, L.P. The DIP Facility matures on the earliest of (i) July __, 2002; (ii) the date of termination in whole of the Working Capital Commitments and the Letter of Credit Commitments, and (iii) the effective date of a plan of reorganization involving WINC or any Material Subsidiary. In general terms, the Loan Parties have agreed to secure the Obligations with, inter alia, (i) first priority liens on and security interests in (subject to Permitted Liens) all unencumbered property and interests, real and personal, tangible and intangible, of the Loan Parties, whether now owned or hereinafter acquired, all on the terms and conditions set forth in the Loan Documents, in accordance with Section 364(c)(2) of the Bankruptcy Code, (ii) junior liens on all property (other than Prepetition Collateral) of the Loan Parties that is subject to valid and perfected liens in existence at the time of commencement of the Cases, in accordance with Section 364(c)(3) of the Bankruptcy Code or becomes subject to a valid lien perfected (but not granted) after the Petition Date to the extent such post-Petition Date perfection in respect of prepetition claims is expressly permitted under the Bankruptcy Code, and (iii) first priority, senior priming liens on all Prepetition Collateral in accordance to Section 364(d)(1) of the Bankruptcy Code, and all existing liens on the Prepetition Collateral for the benefit of the Prepetition Lenders shall be made subject and subordinate to the perfected first priority senior liens to be granted to the Administrative Agent, in each case subject and subordinate to a $2,500,000 Carve-Out for payment of the fees and expenses of professionals employed and retained by the Debtors and any Statutory Committees, any Examiner appointed under 11 U.S.C. Sec. 1104 (but not one with expanded powers), and fees payable to the U.S. Trustee and the Bankruptcy Clerk. The Debtors grant the DIP Lenders a package of Collateral including: (a) All stock of the Borrower and Guarantors and their respective present and future subsidiaries, provided that such Liens, in the case of any foreign subsidiary, shall be limited to 65% of the voting stock of such foreign subsidiary (to the extent Liens on any greater percentage would result in adverse tax consequences to the Borrower), and such other property and interests, real and personal, tangible and intangible, whether now owned or hereafter acquired, of the Borrower and the Guarantors including, without limitation, all inventory, accounts, general intangibles, investment property, chattel paper, goods, furniture, fixtures, equipment, intellectual property, contracts, books and records, cash (respectively if and as defined in the Uniform Commercial Code), and causes of action, rights to payment including tax refund claims, insurance proceeds and tort claims (including, subject to entry of the Final Order, actions for preferences, fraudulent conveyances, and other avoidance power claims and any recoveries under sections 506(c), 542, 544, 545, 547, 548, 549, 550, 552(b) and 553 of the Bankruptcy Code), now owned or in which the Debtors have any interest or hereafter acquired or in which the Debtors obtain an interest; all present and future leasehold interests in which the Debtors have an interest; all intercompany indebtedness arising from any transfer of funds between Debtors on or after the Petition Date in accordance with the cash management system of the Debtors (as approved by the Court by separate order), all real estate owned by the Debtors or in which the Debtors have an interest and the products and proceeds thereof, (in each case without regard to whether acquired prior or subsequent to the Petition Date). Loans under DIP Facility accrue Interest, at the option of the Borrower, at: (A) A rate per annum equal to the sum of (i) a margin of 1.5% and (ii) a fluctuating interest rate based on the highest of (a) Citibank's applicable base rate, (b) a rate based on the three week moving average of applicable interest rates for certification of deposit adjusted for reserve requirements, plus a premium of 50 basis points and (c) the three week moving average of the estimated annual assessment rate payable by Citibank to insure U.S. dollar deposits; or (B) A rate per annum equal to the sum of (i) a margin of 2.5% per annum and (ii) a variable rate based on the London interbank market rate applicable two days before the borrowing, as adjusted to account for specified reserve requirements. If an Event of Default is triggered, the interest rate increases by 2% per annum. The Debtors pay a variety of Fees and Expenses under the DIP Facility: * a $1,312,500 Arrangement Fee; * a $100,000 annual Agent & Collateral Monitoring Fee; * non-refundable fee of 0.5% per annum for every dollar not borrowed; * 2.50% letter of credit fronting fees; and * reimbursement of all costs and expenses of the Administrative Agent and the Arranger. Under the DIP Facility, the Lenders and the Debtors agree -- and Judge Tice is asked to so order -- that the Creditors' Committee shall have 60 days from its appointment within which to file any objection or commence any such action with respect to the Prepetition Senior Lenders' Claim or the Prepetition Senior Lenders' Liens on the Prepetition Collateral, including, but not limited to: (i) disallow the Prepetition Senior Lenders' Claim; (ii) avoid any lien, security or collateral interest in the assets of the Debtors claimed by the Prepetition Senior Lenders in Prepetition Collateral; (iii) otherwise challenge the validity, priority or extent of the Prepetition Senior Lenders' claim or the Prepetition Senior Lenders' liens on the Prepetition Collateral; (iv) obtain any other relief of any type or nature whatsoever, legal or equitable, against the Prepetition Senior Lenders, or otherwise recover from the Prepetition Senior Lenders on account of their relationship with the Debtors prior to the commencement of these proceedings; and (v) challenge the application of any Monthly Interest Payment. Thereafter, any and all challenges to the validity, sufficiency, extent, perfection, refinancing or avoidance of the Prepetition Senior Lenders' liens on the Prepetition Collateral or the Prepetition Senior Lenders' claim shall be forever barred. The Debtors covenant with the DIP Lenders, inter alia, that: (A) Asset Sales are limited to (i) sales of Inventory in the ordinary course of its business; (ii) in a transaction authorized by Section [4].02(d) of the Credit Agreement, restricting merger transactions of non-debtor affiliates; (iii) sales or dispositions of obsolete or worn-out equipment in the ordinary course of business; (iv) dispositions constituting the creation of leasehold interests in the ordinary course of business and consistent with past business practices; (v) sales or transfers of Inventory to Subsidiaries of the Borrower in the ordinary course of business on pricing terms consistent with past practice; and (vi) sales of assets for cash and for fair value in an aggregate amount not to exceed $10,000,000 in any Fiscal Year; provided that in the case, the Borrower shall prepay the Advances from the Net Cash Proceeds from such sale to the DIP Lenders. (B) Lease Obligations are restricted such that the Debtors will not permit any Subsidiary to create, incur, assume or suffer to exist, any obligations as lessee (i) for the rental or hire of real or personal property in connection with any sale and leaseback transaction, or (ii) for the rental or hire of other real or personal property of any kind under leases or agreements to lease (other than Capitalized Leases) having an original term of one year or more that would cause the direct and contingent liabilities of the Borrower and its Subsidiaries, on a Consolidated basis, in respect of all such obligations to exceed $40,000,000 payable in any period of 12 consecutive months. (C) Capital Expenditures are limited to: Period Amount ------ ------ July 2001 through December 2001 $30,000,000 January 2002 through July 2002 $18,000,000 provided, however, that if for the period from July 2001 through December 2001, the amount specified above for such period exceeds the aggregate amount of Capital Expenditures made by the Borrower and its Subsidiaries during such period, the Borrower and it Subsidiaries shall be entitled to make additional Capital Expenditures in the period from January 2002 through July 2002 in an amount equal to the Excess Amount. (D) EBITDA will not fall below: Period Amount ------ ------ Fiscal Quarter ending September 2001 $13,000,000 Two Fiscal Quarters ending December 2001 $45,000,000 Three Fiscal Quarters ending March 2002 $91,000,000 Four Fiscal Quarters ending June 2002 $104,000,000 Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, and Benjamin Ackerly, Esq., at Hunton & Williams, serve as counsel to the Prepetition Senior Lenders. Constance Fratianni, Esq., at Shearman & Sterling, and Stephan W. Milo, Esq., at Wharton Aldhizer & Weaver PLC, represent the DIP Lenders. Steven R. Gross, Esq., at Debevoise & Plimpton, told Judge Tice at the First Day Hearing that the Informal Committee he represents sees the need for the DIP Financing Facility finds is amenable to entry of an Interim DIP Financing Order. The evidence before the Court, Judge Tice observed at the First Day Hearing, shows that the Debtors are unable to obtain unsecured credit or debt allowable as an administrative expense under section 503(b)(1) of the Bankruptcy Code in an amount sufficient and readily available for them to maintain ongoing operations. Moreover, the Debtors are unable to obtain financing (other than the limited financing pursuant to the Interim Order, which will bear the security described above) that does not provide for the granting of the liens as described above. Without emergency approval of borrowings under the DIP Facility and approval of the use of the Prepetition Senior Lenders' Cash Collateral on the terms and conditions described in the Interim Order, the Debtors' objective of prosecuting these chapter 11 cases and restructuring their businesses as a going concern, while maintaining the value of their businesses and assets for the benefit of their creditors and employees, may fail without a fair opportunity to achieve the purposes of chapter 11. Under the circumstances of these cases, Judge Tice held, the Debtors' Motion for interim authority to borrow up to $25,000,000 under the terms of the DIP Credit Agreement should be granted. Observing that the interim relief requested by AMF is necessary in order to maintain ongoing operations and avoid immediate and irreparable harm and prejudice to the Debtors' respective estates, Judge Tice granted the Debtors' Motion pending a Final DIP Financing Hearing to be held at 2:00 p.m. on August 8, 2001. *** End of Issue No. 1 ***