Knotel files bankruptcy with $70 million bid from Newmark affiliate

By Sarah Lizee

Olympia, Wash., Feb. 1 – Knotel, Inc. and its U.S. subsidiaries filed Chapter 11 bankruptcy petitions on Sunday in the U.S. Bankruptcy Court for the District of Delaware, according to a press release.

The company said it plans to use the process to become a more capital-efficient business and reorganize its operations and capital structure under new ownership.

Knotel reached an agreement to sell the business to an affiliate of Newmark Group, Inc for $70 million in the form of a credit bid.

The company has also made the decision to exit multiple locations in the U.S. as part of the process.

“The pandemic created a uniquely challenging operating environment, with significant impacts on leasing velocity and the rate of renewals in key markets, particularly New York and San Francisco. We must address this now to position our business for sustainable growth and a successful future,” Amol Sarva, Knotel co-founder and chief executive officer, said in the release.

“Our restructuring will enable us to strengthen our balance sheet, focus on a rightsized portfolio of locations, and maintain relationships with our customer base while continuing to build on Knotel's differentiated service offering.”

The company has filed a series of customary first-day motions, including requests to continue to pay wages and provide health and insurance benefits to employees in the normal course.

Bid procedures

The company filed a motion requesting approval of the stalking horse asset purchase agreement with Newmark, which has a 3% termination fee and a $500,000 expense reimbursement, according to court documents.

Under the proposed bidding procedures, bids would be due by 4 p.m. ET on Feb. 28, an auction would be held on March 2, and a sale hearing would be held on March 4.

Competing bids must exceed the stalking horse bid, plus the bid protections and $500,000.

DIP financing

The company obtained a $20.4 million commitment for debtor-in-possession financing from an affiliate of Newmark. The DIP financing will also have a roll-up of $20.4 million of pre-petition secured debt.

Knotel is seeking interim access to $15 million of new money loans and $15 million of roll-up loans.

The facility will mature on the earliest of three months from the closing date, the date a sale of the debtors’ assets closes, and the date of acceleration of the DIP loans.

Interest on the DIP facility will be 12% per annum.

The company is also seeking court approval to use the cash collateral of the Newmark affiliate.

Debt details

The company listed $1 billion to $10 billion of both assets and liabilities in its petition.

Its largest unsecured creditors are One Workplace L Ferrari LLC, based in Santa Clara, Calif., with a $4.99 million supply chain furniture claim, Hudson 901 Market LLC, based in San Francisco, with a $4.04 million rent claim, Eden Technologies, based in San Francisco, with a $3.12 million facilities claim, 260-261 Madison Ave LLC, based in New York, with a $2.69 million rent claim, 505 Howard SF LLC, based in Sterling, Va., with a $2.31 million rent claim, SourceMedia, based in New York, with a $2.12 million rent claim, and HRC Corp., based in New York, with a $2.12 million rent claim.

Milbank LLP and Fenwick & West LLP are serving as legal counsel and Moelis & Co. LLC is serving as investment banker to Knotel.

New York-based Knotel operates a flexible workspace platform that matches, tailors and manages space for customers. The company filed bankruptcy under Chapter 11 case number 21-10146.

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