MobiTV Files For Chapter 11 Bankruptcy Protection

March 2, 2021 – MobiTV, Inc. has filed for voluntary Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court for the District of Delaware.[1]

MobiTV, a streaming TV platform enabling app-based pay TV services for broadband and wireless operators, is used by many small and large companies. MobiTV’s bankruptcy filing notes that it “holds key contracts with T-Mobile USA, Inc. and over 120 cable/broadband television providers to deliver streaming content to over 300,000 end-user subscribers via business customer-specific branded iterations of the IPTV Application.”[2] MobiTV has 86 employees, of which 76 are salaried and 10 are paid hourly. It also utilizes the services of eight independent contractors and certain staffing firms based in India.[3]

MobiTV is in bad shape financially, so bad “the Company” has decided to reorganize. As of the date of the bankruptcy filing, “the Company had total assets of approximately $19 million and total liabilities of $75 million. In calendar year 2020, the Company generated approximately $13.5 million in revenue, resulting in an operating loss of approximately $34 million. The Company derives its revenue from contracts with its subscription television customers, T-Mobile, and certain other broadband and cellular service providers, who utilize the Company’s IPTV Application.”[4]

MobiTV lost $34 million last year – in 2020, when so many people were stuck at home streaming TV shows and movies in their free time. To be fair, MobiTV is a platform – the IPTV Application – which is used by broadband providers to deliver a monthly pay TV service to their customers.[5] MobiTV is not a direct-to-consumer subscription-based app like Netflix or Disney+. MobiTV derives its revenue from the operators using its platform and those operators’ subscribers.

But still, with streaming booming these days, one would think all forms of video on demand would be profitable. It appears MobiTV needs even more scale to turn a profit. But what happened? What does Mobi say? Well, it blames the Corona Virus:

Although the Company projected significant and material subscriber and revenue growth for 2020, the COVID-19 pandemic and related stay-at-home orders, materially impaired the Company’s growth opportunities. As a result, the Company found itself with limited liquidity and at risk of default under its debt agreements.[6]

I don’t know, this seems counterintuitive to me. Maybe I’m looking at it wrong or not seeing something. I get how costly it is to be a cableTV provider these days, and how small the margins are and have been for some time now. But 2020 was the year of video consumption. I guess this is about scale, as well as customer-flight. Some broadband providers have exited the video business altogether. More and more people are cord cutting, and only paying for Netflix and others. All of this impacts MobiTV’s revenue.

The end goal of Chapter 11 for MobiTV appears to be a sale. According to a Press Release announcing the filing, “MobiTV has received a commitment for a $15.5 million debtor-in-possession financing facility that will support the Company for the duration of the restructuring process, providing MobiTV with the financial runway and flexibility to execute on a value-maximizing solution, which may include a going-concern sale under section 363 of the Bankruptcy Code.”

While all of this sounds bad, in a letter to partners that have deployed its platform, MobiTV’s CEO said the lights will stay on:

Please be assured that this action does NOT mean the Company is going out of business. We will continue to provide live and on-demand video solutions to our customers and will continue to review our services through the case proceedings. In connection with the Chapter 11 filing, the Company has secured important bridge funding commitments which will allow MobiTV to continue business as usual operations during the pendency of the proceeding.

Here are some interesting tidbits from MobiTV’s bankruptcy filing, which includes parts about how T-Mobile provided much needed bridge financing:

As of the Petition Date, the Company’s aggregate funded and matured secured debt obligations were approximately $25 million, plus accrued interest and expenses. This amount is owed to the Debtors’ sole prepetition secured lender, Ally Bank. *** The original maturity of the Prepetition Loan Facility was February 3, 2019. However, over a series of seventeen (17) amendments and forbearance agreements, the maturity date was effectively extended to January 2021. (Filing at 11)

On January 29, 2021, the Debtors and the Prepetition Lender entered into that certain Forbearance Agreement and Eighteenth Amended to Loan and Security Agreement whereby T-Mobile agreed to provide $2.5 million in bridge financing through the existing Prepetition Loan Facility. (Filing at 12)

On February 12, 2021, the Debtors and the Prepetition Lender entered into that certain Second Forbearance Agreement and Nineteenth Amendment to Loan and Security Agreement (the “Nineteenth Amendment”), whereby T-Mobile agreed to provide an additional approximate $2.3 million in bridge financing through the existing Prepetition Loan Facility. Pursuant to the Nineteenth Amendment, the Prepetition Lender agreed to forbear until February 26, 2021. (Filing at 13)

The Prepetition Loan Facility is secured by substantially all of the Company’s assets, including intellectual property, accounts receivable, inventory, and equipment. The Company also entered into various deposit account control agreements with the Prepetition Lender. (Filing at 13)

PPP Loan. In April 2020, and with the consent of the Prepetition Lender, debtor MobiTV, Inc. submitted to Silicon Valley Bank (“SVB”) an application to borrow funds made available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which added a new product titled the Paycheck Protection Program (the “PPP”) to the U.S. Small Business Administration’s Loan Program. On April 21, 2020, SVB approved and funded the Company’s PPP loan application in the approximate amount of $3 million (the “PPP Loan”). Prior to the Petition Date, the Company applied for the balance of the PPP Loan to be forgiven. However, as of the Petition Date, the balance of the PPP Loan ($3 million) remained outstanding. (Filing at 15)

Rackspace Note. On October 9, 2020, debtor MobiTV, Inc. and Rackspace International Holdings, Inc. (“Rackspace”) entered into that certain Subordinated Convertible Promissory Note (the “Rackspace Note”) pursuant to which Rackspace loaned the Company $4 million. As of the Petition Date, the aggregate principal amount outstanding under the Rackspace Note is $4 million. The obligations under the Rackspace Note are unsecured. (Filing at 16)

Oak Investment Notes. Debtor MobiTV, Inc. is party to three (3) outstanding notes (together, the “Oak Investment Notes”): (a) that certain Subordinated Convertible Promissory Note, dated as of August 6, 2020, with a principal outstanding amount of approximately $4 million; (b) that certain Subordinated Convertible Promissory Note, dated as of December 14, 2020, with a principal outstanding amount of approximately $1 million; and (c) that certain Subordinated Convertible Promissory Note, dated as of December 30, 2020, with a principal outstanding amount of approximately $300,000. As of the Petition Date, the aggregate principal amount outstanding under the Oak Investment Notes is approximately $5.3 million. The obligations under each of the Oak Investment Notes are unsecured. (Filing at 17)

Trade Debt. In the ordinary course of business, the Debtors incur trade credit on varying terms. As of the Petition Date, the Company estimates that there is approximately $15 million in general unsecured claims relating to trade debt. (Filing at 18)

Prepetition Sale Efforts. In accordance with the terms of the Fifteenth Amendment, in August 2020, theDebtors engaged FTI Capital Advisors LLC (“FTI”) to assist with the Debtors’ evaluation of strategic alternatives. (Filing at 21) As part of this process, FTI and the Debtors contacted seventy-nine (79) potential capital sources, ranging from strategic investors, venture capital funds, third party lenders, and media and technology focused investors, of which twenty-two (22) executed non-disclosure agreements. While the Debtors entered into advanced negotiations with several potential capital providers, including a period of exclusive negotiations with several potential investors, negotiations to structure an acceptable out-of-court refinancing were unsuccessful. (Filing at 22)

[P]rior to the Petition Date, the Company engaged in extensive negotiations with the Prepetition Lender and T-Mobile regarding, among other things, a potential auction sale process in the context of a chapter 11 proceeding. Ultimately, the Company, the Prepetition Lender, and T-Mobile mutually determined that, among the strategic alternatives to be considered, the Company should prepare for a potential sale process that could be implemented through the filing of chapter 11 cases to maximize the value of the Company and its assets. In connection therewith, an affiliate of T-Mobile, TVN Ventures, LLC (the “DIP Lender”) agreed to provide the Company with postpetition financing on a subordinated basis to the Prepetition Loan Facility. (Filing at 24)

Accordingly, shortly hereafter, the Company will file a sale procedures motion to establish a formal marketing process designed to maximize the value of the Company’s assets. In connection therewith, the Company contemplates a robust marketing process followed by an open auction. The Company will also seek authority to enter into a stalking horse bid and designate a stalking horse purchaser in the Company’s business judgment (after consultation with the DIP Lender, the Prepetition Lender, and any official committee of unsecured creditors, as applicable) up to and including 7 calendar days prior to the bid deadline. This optionality will allow the Company to continue to work towards securing a stalking horse bid as a backstop to the sale process, while enabling the process to proceed as efficiently and economically as possible. (Filing at 26)

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[1] MobiTV Inc., et al., Declaration Of Terri Stevens In Support Of First Day Motions, Case 21-10457-BLS, U.S. Bankruptcy Court For The District Of Delaware (Mar. 1, 2021), https://www.csbankruptcyblog.com/wp-content/blogs.dir/375/files/sites/55/2021/03/declaration-.pdf.

[2] MobiTV Bankruptcy Filing at 7.

[3] iTV Bankruptcy Filing at 8.

[4] MobiTV Bankruptcy Filing at 9.

[5] MobiTV’s “IPTV Application is fully customizable, allowing [MobiTV’s]...to provide a fully branded and customized video streaming platform on retail devices such as Roku, Apple TV, Amazon Fire TV, Xbox, and smart TVs, as well as other devices utilizing Android and iOS operating systems to their subscribers.”

[6] MobiTV Bankruptcy Filing at 20.