A Mike Zapata Transaction is a term for when a controlling shareholder of a listed company with no senior debt that is heading towards a reorganisation, such as a chapter 11 bankruptcy, lends the company a minor amount of money in order to get seniority over his fellow shareholders in order to claim salvageable assets from the restructuring.
Mike Zapata is the founder of Sententia Capital Management and is the Executive Chairman of Schmitt Industries. He has made appearances on a number of investment podcasts, where he talks about his background as a Navy SEAL.
Schmitt Industries acquired the assets of ice cream brand Ample Hills out of bankruptcy in June 2020. Under the stewardship of Schmitt, the company tried to relaunch the Ample Hills business and opened up several new locations. By 2022, Ample Hills was still unprofitable and the ability of Schmitt to fund the operations was uncertain.
On October 25, Schmitt published an 8-K filing with the SEC, notifying that Sententia had bought a promissory note issued by Schmitt for $1 million. The filing stated that the loan was bridge financing.
Less than two months later, on December 19, the company issued a press release, stating that Ample Hills was shutting down “for at least a week” to try to seek funding, noting that if it could not “it will be required to shut down operations indefinitely.” Ample Hills never reopened and Schmitt management effectively stopped communicating with its shareholders.
Schmitt still has subsidiaries that are operating and Sententia will have a senior claim over common shareholders on any proceeds that will result from the sale of those assets.