Kihei, Hawaii-based Maui Brewing Company has placed a “stalking horse” bid to acquire San Diego, California-based Modern Times Beer, which has been accepted by a court-appointed receiver. The bid will set the bar for the auction of Modern Times, set for June, a source told Brewbound.
Maui will have the option to increase its initial offer if outbid during the auction process. Specifics of the bid were not shared.
“While this is just the first step in a long process, we believe in the Modern Times brand and feel it provides a tremendous opportunity for us,” Garrett Marrero, Maui Brewing co-founder and CEO, said in a press release. “They have an amazing, dedicated team and we hope to contribute to the next stage in their journey as a craft brewery.”
According to a report filed by court-appointed receiver Thomas C. Hebrank on May 9, the due diligence period opened April 26 and the deadline for stalking horse selection was May 13.
Qualified overbids – those higher than Maui’s stalking horse bid – are due at 5 p.m. PT on June 3. An auction will likely take place on June 8, with a hearing to confirm the winning bid later in the day in the Superior Court of Orange County.
“The sales process is on track, and interest has been very positive to date,” Hebrank wrote.
While news that Modern Times was seeking a buyer or investor was first reported earlier this year, the company has explored a sale since at least March 2020, when it bought on Arlington Capital Advisors to help oversee the process, according to the receiver’s initial inventory report, submitted to the court May 9.
“Despite Arlington’s efforts over the last two years, no buyer was found,” Hebrank wrote.
In February, Modern Times announced the closure of four of its taprooms and the elimination of 73 jobs. Two months later, the company announced it entered a court-ordered receivership process, following litigation filed by the brewery’s creditor bank, California Bank & Trust (CB&T), over outstanding credit.
Hebrank was appointed as receiver on April 5, according to court documents. At $375 per hour, his fees totaled $23,428.20 through April 30 and “shall be paid as allowed by Modern Times’ cashflow,” according to the report.
In the initial complaint filed in late March, Modern Times’ main secured lender Zions Bancorporation (dba California Bank & Trust) alleges Modern Times defaulted on three notes as well as breached a credit card agreement, among other claims, which it notified the brewery of on January 21, 2022. Those notes include a $1.4 million revolving loan note, a $7.6 million term loan, a $2.5 million term loan, all with remaining principal balances.
The complaint alleges that Modern Times has failed to pay the amounts it owes Zions, including as of March 21, 2022:
- $900,000 on its revolving loan note, plus $2,125.01 in interest, $77 in fees and at least $75,000 in attorneys’ fees;
- $4.845 million on its term loan note, plus $97,580.71 in interest, $85 in fees, $5,579.37 in late fees, and at least $75,000 in attorneys’ fees;
- $1,291,666.86 on its other term loan note, plus $28,696.19 in interest, $85 in fees, $2,304.44 in late fees, and attorneys’ fees of at least $75,000;
- $769,134.78 in a breached credit card agreement, plus $15,383 in late charges, plus finance charges, and attorneys’ fees of at least $75,000.
Additionally, the complaint alleges Modern Times defaulted on its obligations to subordinated debt holder Live Oak Banking Company, “triggering cross-defaults under applicable Loan Documents, including cross-defaults arising from a Subordination Agreement dated April 1, 2019, between Live Oak, as the junior and subordinated lender, and Zions, as the senior lender, and (b) experiencing a material adverse change with respect to its financial condition such that Zions believes that the prospect of payment or performance of the Loans is impaired based on Material Adverse Occurrences (collectively the “Defaults”).”
Since Hebrank’s appointment as receiver, he has been authorized to borrow $1.1 million from CB&T to keep Modern Times running, and has borrowed $551,608.48, according to a report he filed on May 9.
In his assessment of the company’s financial operations, Hebrank noted the company “continue[s] to maintain operations including accounts payable, receivable collections, equipment sales, creditor and vendor negotiations, etc., while being both understaffed and at the same time assisting with the sale process.”
“Sales are strong with both the upcoming summer holiday demand and the addition of large wholesale orders,” Hebrank wrote, which has resulted in “accelerated” borrowing due to “the need to prefund materials and supplies (primarily cans) in order to meet sales demand for the busy Memorial Day-July 4th holiday periods.”
Earlier this month, Modern Times CEO Jennifer Briggs announced that “the future of Modern Times” would be known “by the end of June,” during a discussion with Brewers Association (BA) president and CEO Bob Pease at the Craft Brewers Conference (CBC) in Minneapolis.
Hebrank has accepted Maui’s bid, but, per the receivership process, and should Maui win the auction, the court will still need to approve the sale and its terms, according to Brewbound’s source, who added that there is “no indication that [the court] wouldn’t approve what the receiver (who is an agent of the court) puts together.”
Maui Brewing produced 62,592 barrels in 2021, a +55% increase compared to 2020, making the Brewers Association’s (BA’s) top 50 craft breweries list, at No. 44. The company has a production target of 100,000 barrels in 2022, Marrero told Brewbound in November. The growth is being supported by the transition of all “mainland production” – all Maui offerings produced for sale outside of Hawaii – to Sleeping Giant Brewing Company in Denver.
In April, Maui Brewing shipments increased +17%. The company is “still under-producing based on customer demand,” with a “minimum additional 15% volume growth left on the table due to labor and supply shortages,” according to the release.
Southern California is Maui Brewing’s second largest market – after its home base in Hawaii – allowing for “wholesale network synergies” between Maui and Modern Times, should Maui win the bid, according to the release. The company added that Modern Times’ “incredible staff, innovative products, and its dedicated customers” are all “simpatico with Maui Brewing Company.”
Additionally, Maui Brewing has “several key capital improvement projects underway to enhance production abilities,” for its family of brands, including Maui Hard Seltzer, Kupu Spirits and Island Soda.
The “potential acquisition would have no bearing on operations at the Kihei facility or Maui’s current mainland operations,” Maui Brewing noted in the release.