Compass Coffee - Chapter 11 Case Summary

Business Description

Headquartered in Washington, D.C., Compass Coffee, LLC ("Compass" or the "Debtor") is a coffee roaster and retailer operating a network of cafés across the District of Columbia, southern Maryland, and northern Virginia.

• Compass currently operates 25 retail café locations, all of which are leased from unrelated parties.
• The Company employs 166 individuals, comprising 23 salaried staff and 143 hourly workers, stationed across its café locations and headquarters.

To drive customer engagement and revenue, Compass utilizes a tiered loyalty system known as "Compass Rewards." Through this program, customers earn points on every dollar spent, which are redeemable for food and beverages. The Company also participates in a gift card program through inKind and offers various promotional discounts to foster repeat business.

Compass Coffee, LLC filed for Chapter 11 protection on January 6, 2026 (the "Petition Date") in the U.S. Bankruptcy Court for the District of Columbia. Contemporaneous with the filing, the Debtor is pursuing a section 363 sale process to sell substantially all assets to a strategic buyer.

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Corporate History

Compass was co-founded in 2014 by CEO Michael Haft and organized as a Delaware Limited Liability Company. The Company opened its first café in Washington, D.C. that same year. Equity is primarily held by Haft, with remaining interests divided among 22 minority equity holders.

Strategic Operational Shifts

Prior to the Petition Date, Compass executed several strategic changes to streamline operations and preserve liquidity:

• Distribution Closure: Compass previously operated a coffee distribution business line. Before the bankruptcy filing, the Company closed this division, sold specific inventory and equipment, and utilized the proceeds to fund remaining operations.
• Headquarters Relocation: Until December 2025, Compass maintained its headquarters in the Ivy City section of D.C. The Company has since vacated the office space, moving headquarters personnel to a leased premise adjacent to its café at 1535 7th Street NW.

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Operations Overview

Compass focuses on its core retail café business while winding down ancillary divisions. Operations are supported by a critical supply chain and specialized equipment.

Production and Supply Chain

The Company relies on a specific set of long-standing partners to maintain product quality and consistency.

• Roasting Assets: While Compass vacated its former Ivy City headquarters, it retains ownership of substantial coffee roasting equipment located at that facility.
• Critical Vendors: The Debtor’s operations depend on three suppliers for green coffee beans and one supplier for branded cups and related supplies. These vendors typically provide net-30 payment terms and are considered indispensable to avoiding production disruptions.

Construction Division Wind-Down

Compass previously utilized in-house staff for café construction and occasionally undertook third-party projects. The Company has determined there is no value in marketing this line of business and intends to cease these operations.

• Current Status: There is one remaining active project involving the construction of a bar for an unaffiliated restaurant, which is nearing completion.
• Completion Plan: Compass intends to pay necessary subcontractors to finish the project, allowing the Company to collect final payment from the project owner. No further construction work is currently in the queue.

Cash Management and Utilities

The Company maintains a cash management system consisting of nine bank accounts across four banks. These accounts handle revenue from various channels, including in-store sales, mobile apps, and third-party processors. Compass also maintains essential utility services—including internet, gas, electric, and water—vital for continuing its café operations as a going concern.

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Prepetition Obligations

As of the Petition Date, the Debtor’s capital structure consists of approximately $1.7 million in obligations secured by filed financing statements, $5.2 million in unsecured convertible notes, and approximately $4.8 million in general unsecured claims. The Company is current on its tax and employee obligations.

Secured Debt

• Term Loans and Receivables Financing: The Company has three primary credit arrangements that are current on payment obligations:
  • EagleBank: Approximately $643,779 is outstanding under a term loan subject to a forbearance agreement.
  • Square: Approximately $518,083 is owed regarding a receivables financing facility utilized by the Debtor’s cafes.
  • Small Business Administration (SBA): Approximately $464,782 remains outstanding on a disaster assistance loan extended following the COVID-19 pandemic.
• inKind Arrangement: The Debtor utilizes inKind, a financing platform that provides upfront working capital by purchasing food and beverage credits at a discount to sell to consumers.
  • Pursuant to an April 2025 agreement, inKind paid $120,000 for $240,000 worth of credits. The outstanding balance of credits is approximately $100,000.
  • While inKind asserts a security interest in connection with the purchase agreement, the Debtor has been unable to determine the grounds for such an assertion and reserves all rights to dispute the validity or priority of the lien.

Unsecured Convertible Notes

• The Company owes approximately $5.2 million to various insider and outside investors arising from the issuance of unsecured convertible notes.

Trade and Other Unsecured Claims

• General Unsecured Claims: As of the Petition Date, the Debtor has over 100 additional unsecured creditors with aggregate claims totaling approximately $4.8 million.
  • These obligations primarily consist of past-due rent, unpaid amounts related to prior store acquisitions, and accounts payable owed to suppliers and vendors.
• Litigation: The Debtor is a defendant in lawsuits filed by certain landlords and vendors seeking recovery of past-due rent and other payments.

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Events Leading to Bankruptcy

Macroeconomic Headwinds and Operational Shifts

• The onset of the COVID-19 pandemic in early 2020 precipitated severe operational disruptions, necessitating a modification of the Company's customer-facing retail model and a reduction in its workforce.
  • To mitigate the loss of income from declined café traffic, the Company temporarily diversified into coffee roasting and distribution. However, to optimize operating cash flow, Compass recently exited the distribution business to refocus exclusively on its core café operations, while simultaneously implementing significant overhead reductions.
  • Despite the end of the pandemic, retail traffic remains depressed relative to pre-pandemic levels due to external structural shifts, including the prevalence of remote work and a reduction in government employees in urban areas. Consequently, the Company’s portfolio is split between profitable locations and those that generate minimal or negative margins.

Prepetition Marketing and Sale Strategy

• Following years of post-pandemic financial strain, the Company determined that a going-concern sale represents the optimal path to preserve jobs, maintain landlord and vendor relationships, and maximize creditor recoveries.
  • Marketing efforts commenced in May 2021 through direct outreach to industry contacts, generating interest from multiple suitors regarding a potential transaction for substantially all assets.
  • After two months of active negotiations, the Company reached an agreement with a strategic buyer possessing a substantial global retail coffee presence. This buyer is expected to serve as the “stalking horse” bidder, subject to bid protections and a Court-supervised auction process.
• The proposed transaction contemplates an asset sale free and clear of claims. Proceeds are expected to be sufficient to pay secured lenders in full, cover the administrative costs of the Chapter 11 process, and provide a distribution to unsecured creditors.

DIP Financing and Use of Cash Collateral

• While the Company projects sufficient cash on hand and operational revenue to fund post-petition operating expenses and debt service, it lacks the liquidity necessary to fund the specific restructuring costs associated with the sale process.
• To bridge this funding gap, Compass secured a commitment for a post-petition line of credit of up to $450,000 from National Investment Group, Inc. (“National Investment”).
  • National Investment is an existing stakeholder, holding approximately 5.04% of voting equity, 8.83% of Series A shares, and $1.05 million in unsecured convertible notes. Shareholders of the DIP lender include relatives of the Declarant.
• The Company intends to use cash collateral to support ordinary course operations, ensuring adequate protection for interest holders through replacement liens and continued debt service payments during the sale process.