New Chapter 11 Bankruptcy Filing - Stein Mart Inc. ($SMRT)

Stein Mart Inc.

Man. This story sucks. Stein Mart Inc. ($SMRT), a publicly-traded specialty off-price retailer with 281 stores across the Southeast, Texas, Arizona and California is the latest retailer to file bankruptcy (along with two affiliates).

To set the stage, imagine Han and Lando taking a fun little ride on a desert skiff. Suddenly a riot breaks out and amidst the confusion Lando falls off the skiff. Luckily, Han is able to grab Lando’s hand so that Lando doesn’t plummet into the gnarley tentacles of some strange sand beast that randomly happens to be there. As Han pulls Lando up out of reach of the beast, all of the sudden some crazy space virus flows through the airspace and smacks Han straight in the lungs. As he clutches his throat struggling to breathe, he releases Lando who consequently hurls straight down towards the beast and suffers a horrific death.

Now replace (a) Han with Kingswood Capital Management LLC, (b) Lando with Stein Mart, and (c) the “crazy space virus” with COVID-19 and you’ve basically got the story of Stein Mart’s collapse into bankruptcy court. Like many other retailers in this macro climate, Stein Mart was teetering pre-COVID. Sales have been on the decline since 2016. But then in January, Kingswood — along with an entity managed by the Chairman of the company — offered a roughly 20% premium over SMRT’s then-stock price ($0.90/share) to take Stein Mart private. Stein Mart, which had been on distressed watch lists around that time, seemed to be on the receiving end of a much-needed and wildly opportune lifeline. Of course, COVID ended that. Take a look at this mind-boggling decline in YOY performance:

Ab. So. Lutely. Brutal. Just brutal.

Kingswood agreed. Per the company:

…on April 16, 2020, the Merger Agreement was terminated prior to closing because the COVID19 pandemic forced the Company to close all of its stores and the Company was unable to satisfy the minimum liquidity closing condition in the merger agreement.

Was that the definitive end of the deal? No! The parties continued to discuss new deal parameters but then we, as a country, couldn’t get our sh*t in order. With the country averaging 1000+ deaths a day and tens of thousands of new daily COVID infections, Kingswood got skittish:

The Company has subsequently engaged in discussions with Kingswood regarding sale of the Company as a going-concern in recent months pursuant to a bankruptcy sale; however, a transaction presently appears unlikely given the COVID-19 resurgence.

The resurgence is notable because the company has a significant number of stores in Florida, Texas and California. Consequently,…

The Company’s updated financial projections, following the July resurgence of COVID-19, indicated that the Company would not have sufficient liquidity to continue operating the business in the ordinary course consistent with past practice.

So now the company is liquidating. The company projects $250mm in gross recovery from the liquidation of inventory, equipment, fixtures, leases IP and other assets. As of the petition date, it owes its senior secured lender, Wells Fargo Bank NA ($WFC), $84mm; it also owed its term lender, Gordon Brothers Finance Company, $35mm. Tack on administrative expenses for the professionals administering the case and recoveries for those creditors owed a sum total of $770mm in total liabilities begins to look a bit bleak.

*****

A couple of additional notes:

First, this company appears to have been addicted to factoring. Among the companies top six general unsecured creditors are CIT Commercial Services, Wells Fargo Trade Capital Services, and White Oak Commercial Finance.

Second, you can add SMRT to the list of companies that tapped PPP funds yet couldn’t avoid a bankruptcy filing. It received $10mm from Harvest Small Business Finance LLC.

Third, we’re back to borderline collusion among the liquidation firms. The company’s financial advisor issued RFPs to five liquidation consultants. It received two bids back: one from SB360 Capital Partners LLC and one from a Hilco Merchant Resources-led joint venture that included three — that’s right, three — competitors. Per the company:

The Debtors are of the view that in the current environment, where numerous large retailers are being simultaneously liquidated, joint venture liquidation bids are common because a single liquidation firm may not have the resources to staff and manage the entire project. (emphasis added)

Said another way, the retail industry is such an utter dumpster fire right now that liquidators simply don’t have the bandwidth to manage mandates like these on their own (or so the story goes).

While liquidation sales launch, the company will also seek to sell its leases and IP. Except…

…substantial doubt exists as to whether any buyers will be found for leases given the current depressed condition of the retail real estate market.

And they…

…do not anticipate the sale of intellectual property will produce substantial value.

Right. In case you haven’t noticed, the rubber meets the road with these retailers with the IP. That’s why there was the law suit in the Neiman Marcus matter. That’s why there was the asset stripping transaction in the J.Crew matter. But Stein Mart? IP? Brand? Hahahahaha. The company’s bankers tried selling this turd for over 2.5 years. The only buyer was Kingswood, a small LA-based PE fund with a portfolio of four companies and, well, Stein himself. The IP only had value to him. Go figure. And this is after three — yes, three — separate sale and marketing processes.

Is there a chance a buyer emerges from the shadows? Sure. Miracles happen. If not, Wells and Gordon Brothers will be fine. The professionals will get paid. The unsecured creditors will get hosed. Equity will…well forget about it. At least the equity market is finally getting these right (though reasonable minds could certainly question why the stock is trading as high as it is):

The greater likelihood is that this sucker ends in structured dismissal or a conversion to chapter 7.

It’s crazy. Eight months ago the company was headed for a new chapter. Instead the book shut closed.

---

August 12, 2020

Jurisdiction: M.D. of FL (Judge Funk)

Capital Structure: see above

Company Professionals:

• Legal: Foley & Lardner LLP (Gardner Davis, John Wolfel, Neda Sharifi, Richard Guyer, Mark Wolfson, Marcus Helt)

• Financial Advisor: Clear Thinking Group (Patrick Diercks)

• Liquidators: Hilco Merchant Resources LLC, Gordon Brothers Retail Partners LLC, Great American Group LLC, Tiger Capital Group LLC, SB360 Capital Partners LLC

• Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

• RCF Lender: Wells Fargo Bank NA

  • Legal: Otterbourg PC (Daniel Fiorillo, Chad Simon) & Smith Hulsey & Busey (John Thomas, Stephen Busey)

New Chapter 11 Bankruptcy Filing - J.C. Penney Company Inc. ($JCP)

J.C. Penney Company Inc.

May 15, 2020

Let’s be clear about something right off the bat. Encino Man, Captain America and Austin Powers could all suddenly surface from being entombed in ice for decades and even THEY wouldn’t be surprised that Texas-based J.C. Penney Company Inc. (and 17 affiliates, the “debtors”) filed for chapter 11 bankruptcy.

There are a couple of ways to look at this one.

First, there’s the debtors’ way. Not one to squander a solid opportunity, the debtors dive under “COVID Cover”:

“Before the pandemic, the Company had a substantial liquidity cushion, was improving its operations, and was proactively engaging with creditors to deleverage its capital structure and extend its debt maturities to build a healthier balance sheet. Unfortunately, that progress was wiped out with the onset of COVID-19. And now, the Company is unable to maintain its upward trajectory through its “Plan for Renewal.” Moreover, following the temporary shutdown of its 846 brick-and-mortar stores, the Company is unable to responsibly pay the upcoming debt service on its over-burdened capital structure.”

The debtors note that since Jill Soltau became CEO on October 2, 2018, the debtors have been off to the races with their “Plan for Renewal” strategy. This strategy was focused on getting back to JCP’s fundamentals. It emphasized (a) offering compelling merchandise, (b) delivering an engaging experience, (c) driving traffic online and to stores (including providing buy online, pickup in store or curbside pickup — the latest in retail technology that literally everyone is doing), (d) fueling growth, and (e) developing a results-minded culture. The debtors are quick to point out that all of this smoky verbiage is leading to “meaningful progress” — something they define as “…having just achieved comparable store sales improvement in six of eight merchandise divisions in the second half of 2019 over the first half, and successfully meeting or exceeding guidance on all key financial objectives for the 2019 fiscal year.” The debtors further highlight:

The five financial objectives were: (a) Comparable stores sales were expected to be down between 7-8% (stores sales were down 7.7%); (b) adjusted comparable store sales, which excludes the impact of the Company’s exit from major appliances and in-store furniture categories were expected to be down in a range of 5-6% (adjusted comparable store sales down 5.6%); (c) cost of goods sold, as a rate of net sales was expected to decrease 150-200 basis points (decreased approximately 210 basis points over prior year, which resulted in improved gross margin); (d) adjusted EBITDA was $583 million (a 2.6% improvement over prior year); and (e) free cash flow for fiscal year 2019 was $145 million, beating the target of positive.

Not exactly the highest bar in certain respects but, sure, progress nonetheless we suppose. The debtors point out, on multiple occasions, that prior to COVID-19, its “…projections showed sufficient liquidity to maintain operations without any restructuring transaction.” Maintain being the operative word. Everyone knows the company is in the midst of a slow death.

To prolong life, the focus has been on and remains on high-margin goods (which explains the company getting out of low-margin furniture and appliances and a renewed focus on private label), reducing inventory, and developing a new look for JCP’s stores which, interestingly, appears to focus on the “experiential” element that everyone has ballyhooed over the last several years which is now, in a COVID world, somewhat tenuous.

Which gets us to the way the market has looked at this. The numbers paint an ugly picture. Total revenues went from $12.87b in fiscal year ‘18 to $12b in ‘19. Gross margin also declined from 36% to 34%. In the LTM as of 2/1/20 (pre-COVID), revenue was looking like $11.1b. Curious. But, yeah, sure COGs decreased as has SG&A. People still aren’t walking through the doors and buying sh*t though. A fact reflected by the stock price which has done nothing aside from slowly slide downward since new management onboarded:

All of this performance has also obviously called into question the debtors’ ability to grow into its capital structure:

Here’s a more detailed look at the breakdown of unsecured funded debt:

And yet, prior to COVID, the debt stack has more or less held up. Here is the chart for JCP’s ‘23 5.875% $500mm senior secured first lien notes from the date of new management’s start to today:

Here is the chart for JCP’s ‘25 8.624% $400mm second lien notes from the date of new management’s start to today:

And here is our absolute favorite: JCP’s ‘97 7.625% $500mm senior unsecured notes:

The fact that these notes were in the 20s mere months ago is mind-boggling.

We talk a lot about how bankruptcy filings are a way to tell a story. And, here, the debtors, while not trying to hide their stretched balance sheet nor the pains of brick-and-mortar department stores with a 846-store footprint, are certainly trying to spin a positive story about management and the new strategic direction — all while highlighting that there are pockets of value here. For instance, of those 846 stores, 387 of them are owned, including 110 operating on ground leases. The private brand portfolio — acquired over decades — represents 46% of total merchandise sales. The debtors also own six of their 11 distribution centers and warehouses.

With that in mind, prior to COVID, management and their advisors were trying to be proactive about the balance sheet — primarily the term loans and first lien secured notes maturing in 2023. In Q3 ‘19, the debtors engaged with their first lien noteholders, term lenders and second lien noteholders on proposals that would, among other things, address those maturities, promote liquidity, and reduce interest expense. According to the debtors, they came close. A distressed investor was poised to purchase more than $750mm of the term loans and, in connection with a new $360mm FILO facility, launch the first step of a broader process that would have kicked maturities out a few years. In exchange, the debtors would lien up unencumbered collateral (real estate). Enter COVID. The deal went up in smoke.

There’s a new “deal” in its stead. A restructuring support agreement filed along with the bankruptcy papers contemplates a new post-reorg operating company (“New JCP”) and a new REIT which will issue new common stock and new interests, respectively. Beyond that, not much is clear from the filing: the term sheet has a ton of blanks in it:

There’s clearly a lot of work to do here. There’s also the “Market Test” element which entails, among other things, running new financing processes, pursuing potential sale/leaseback transactions, and pursuing a sale of the all or part of the debtors’ assets. If the debtors don’t have a business plan by July 14 and binding commitments for third-party financing by August 15, the debtors are required to immediately cease pursuing a plan and must instead pursue a 363 of all of their assets. Said another way, if the economy continues to decline, consumer spending doesn’t recover, and credit markets tighten up, there’s a very good chance that JCP could liquidate. Remember: retail sales sunk to a record low in April. Is that peak pain? Or will things get worse as the unemployment rate takes root? Will people shop at JC Penney if they even shop at all? There are numerous challenges here.

The debtors will use cash collateral for now and later seek approval of a $900mm DIP credit facility of which $450mm will be new money (L+11.75% continues the trend of expensive retail DIPs). It matures in 180 days, giving the debtors 6 months to get this all done.

*****

A few more notes as there are definitely clear winners and losers here.

Let’s start with the losers:

1. The Malls. It’s one thing when one department store files for bankruptcy and sheds stores. It’s an entirely different story when several of them go bankrupt at the same time and shed stores. This is going to be a bloodbath. Already, the debtors have a motion on file seeking to reject 20 leases.

2. Nike Inc. ($NKE) & Adidas ($ADDYY). Perhaps they’re covered by 503(b)(9) status or maybe they can slickster their way into critical vendor status (all for which the debtors seek $15.1mm on an interim basis and $49.6mm on a final basis). Regardless, showing up among the top creditors in both the Stage Stores Inc. bankruptcy and now the J.C. Penney bankruptcy makes for a horrible week.

3. The Geniuses Who Invested in JCP Debt that Matures in 2097. As CNBC’s Michael Santoli noted, “This JC Penney issue fell only 77 years short of maturing money-good.”

4. Bill Ackman & Ron Johnson. This.

And here are the winners:

1. The New York Times. Imperfect as it may be, their digitalization efforts allow us all to read and marvel about the life of James Cash Penney, a name that so befitting of a Quentin Tarantino movie that you can easily imagine JC chillin with Jack Dalton on some crazy Hollywood adventure. We read it with sadness as he boasts of the Golden Rule and profit-sharing. Profits alone would be nice, let alone sharing.

2. Kirkland & Ellis LLP. Seriously. These guys are smoking it and have just OWNED retail. In the past eight days alone the firm has filed Stage Stores Inc., Neiman Marcus Group LTD LLC and now JCP. It’s a department store hat trick. Zoom out from retail and add in Ultra Petroleum Corp. and Intelsat SA and these folks are lucky they’re working from home. They can’t afford to waste any billable minutes on a commute at this point.

3. Management. They’re getting what they paid for AND, consequently, they’re getting paid. No doubt Kirkland marched in there months ago and pitched/promised management that they’d secure lucrative pay packages for them if hired and … BOOM! $7.5mm to four members of management!

---

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: See above.

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Christopher Marcus, Aparna Yenamandra, Rebecca Blake Chaikin, Allyson Smith Weinhouse, Jake William Gordon) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

  • OpCo (JC Penney Corporation Inc.) Independent Directors: Alan Carr, Steven Panagos

    • Legal: Katten Muchin Rosenman LLP (Steven Reisman)

  • PropCo (JCP Real Estate Holdings LLC & JC Penney Properties LLC) Independent Directors: William Transier, Heather Summerfield

    • Legal: Quinn Emanuel Urquhart & Sullivan LLP

  • Financial Advisor: AlixPartners LLP (James Mesterharm, Deb Reiger-Paganis)

  • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Christian Tempke, Michael Weitz)

  • Store Closing Consultant: Gordon Brothers Retail Partners LLC

  • Real Estate Consultants: B. Riley Real Estate LLC & Cushman & Wakefield US Inc.

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • DIP Agent: GLAS USA LLC

    • Legal: Arnold & Porter Kaye Scholer

  • RCF Agent: Wells Fargo Bank NA

    • Legal: Otterbourg PC & Bracewell LLP (William Wood)

    • Financial Advisor: M-III Partners (Mo Meghli)

  • TL Agent: JPMorgan Chase Bank NA

  • Indenture Trustee: Wilmington Trust NA

  • Ad Hoc Group of Certain Term Loan Lenders & First Lien Noteholders & DIP Lenders (H/2 Capital Partners, Ares Capital Management, Silver Point Capital, KKR, Whitebox Advisors, Sculptor Capital Management, Brigade Capital Management, Apollo, Owl Creek Asset Management LP, Sixth Street Partners)

    • Legal: Milbank LLP (Dennis Dunne, Andrew Leblanc, Thomas Kreller, Brian Kinney) & Porter Hedges LLP

    • Financial Advisor: Houlihan Lokey (Saul Burian)

  • Second Lien Noteholders (GoldenTree Asset Management, Carlson, Contrarian Capital Management LLC, Littlejohn & Co.)

    • Legal: Stroock & Stroock & Lavan LLP (Kris Hansen) & Haynes and Boone LLP (Kelli Norfleet, Charles Beckham)

    • Financial Advisor: Evercore Group LLC (Roopesh Shah)

  • Large equityholder: BlackRock Inc. (13.85%)

🍎New Chapter 11 Bankruptcy Filing - Earth Fare Inc.🍎

Earth Fare Inc.

February 4, 2020

North Carolina-based Earth Fare Inc. is the latest grocer to descend into the Delaware bankruptcy courts, closing a horrific stretch for the grocery space in which multiple chains — including Fairway Market and Lucky’s Market — capitulated into chapter 11. Signs were out there. On January 26th, we noted that the chain was quietly closing locations, a clear indication of trouble and precursor to bankruptcy. Subsequently, The Wall Street Journal reported that the grocer had begun closing approximately 50 stores. The thing is: it has about 50 stores (across 10 states) so that effectively signaled that the company was kaput. Twenty minutes later, the company confirmed as much, issuing a press release that it would liquidate inventory at all of its stores and pursue a sale of its assets. 3,270 people appear poised to lose their jobs. It’s brutal out there, folks.* But at least sumo mandarins are back, bringing all new meaning to “get them before they’re gone.”

Earth Fare is owned, as of 2012, by Oak Hill Capital Partners III LP (72.1%) and MCP Heirloom LLC (18.76%), an ironic name given that there isn’t expected to be much left of this sucker going forward. Which means that we all should suspect yet another onslaught of “Private Equity Kills X” pieces in the media. Because, like, those have been all the rage lately. See, e.g., The New York Times and Payless, and Slate and Fairway.

So what’s the story? Well, for starters, you know you’ve got a dumpster fire on your hands when the company’s first day declaration to be entered into evidence in support of the filing is a whopping 18 pages long. Clearly the expectations here aren’t particularly optimistic.

Similar to Lucky’s Market Parent Company LLC, it appears that the company took on too much debt and expanded too much, too soon. Ah, private equity. Consequently, it has approximately $76.8mm of funded debt including a revolving credit facility held by Fifth Third Bank and Wells Fargo Bank NA and a term loan with a mysterious “Prepetition Term Loan Lender” that the company was apparently fearful of identifying by name in its papers. Like, for some reason. Like, as if, uh, we won’t find out who that sucker is who dumped $14.8mm into this horror show a mere 6 months ago. In addition to the funded debt, the company owes $60mm in trade and other unsecured obligations.

The company blames its failure on a now-standard lineup of excuses that include (i) crazy amounts of competition,** (ii) significant capex, and (iii) too much debt.

Riiiiight. Back to that debt. The company has been in a perpetual state of amend-and-extend since 2017 when, in May of that year, it secured an amendment/extension of its revolving loan maturity to April 2019. Those private equity bros who are sure to get bashed put $10mm of equity capital into the company at that point. Then in August 2018, the company entered into another amendment pushing out its maturity. In connection therewith, those private equity bros who are sure to get bashed put another $9mm of equity capital into the company. Another extension followed in April 2019 in which those private equity bros who are sure to get bashed put another $5mm of equity capital into the company. They likely would have had more fun just putting all of that money on "black” at the roulette table.

Meanwhile, the company’s efforts to refinance its debt and/or sell stalled badly. It sold 5 underperforming stores but the rest of the company’s inventory will be the responsibility of Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC to sell; the sale of its locations the responsibility of A&G Realty Partners LLC; and the sale of the company’s IP, the responsibility of Hilco Streambank. This mandate is raining liquidators!! Toss in legal, a financial advisor and a strategic communications advisor and the question is: is there anyone left to hire to wind down this company?

*Interestingly, The Charlotte Observer reported that “[t]he number of grocery stores in the [Charlotte] metro area has grown by 38% in five years,” a real head-turner of a stat.

** GroceryDive reported:

“They made some strategic mistakes expanding too far into some non-continuous markets,” Burt Flickinger, managing director of Strategic Resources Group in New York, told Grocery Dive. He said Earth Fare’s key markets “were some of the most over-stored on the Eastern seaboard.”

They also note that the pain is pervasive:

Given their large size and market overlap with Earth Fare and Lucky’s, Sprouts and Whole Foods appear to be the main beneficiaries of this round of specialty store closures, sources said. But these chains certainly don’t have it easy. Whole Foods has not returned to profitable growth under Amazon, according to that company’s quarterly earnings reports, while Sprouts’ stock has dropped with the news from Lucky’s and Earth Fare.

“It’s an unforgiving market out there,” Flickinger said.

Indeed!

• Jurisdiction: D. of Delaware (Judge Owens)

• Capital Structure: $43.33mm RCF (Fifth Third Bank), $21.67mm RCF (Wells Fargo Bank NA), $14.8mm Term Loan

• Professionals:

  • Legal: Young Conaway Stargatt & Taylor, LLP (Pauline Morgan, M. Blake Cleary, Sean Greecher, Shane Reil)

  • Financial Advisor/CRO: FTI Consulting Inc. (Charles Goad)

  • Asset Disposition Advisor: Malfitano Advisors LLC

  • Liquidation Consultants: Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC

    • Legal: Pepper Hamilton LLP (Douglas Hermann, Marcy McLaughlin Smith)

  • Real Estate Consultant: A&G Realty Partners LLC

  • IP Consultant: Hilco Streambank

  • Strategic Communications Advisor: Paladin Management Group LLC (Jennifer Mercer)

  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on the link above for free docket access)

• Other Parties in Interest:

📜New Chapter 11 Bankruptcy Filing - SFP Franchise Corp. (aka Papyrus)📜

SFP Franchise Corp.

January 23, 2010

Just last week someone from the PETITION team needed to get a card commemorating a family occasion and checked out the Papyrus store in Grand Central Station. It was jam-packed. She then went on to spent $7.99 on a frikken card — something that, it seems, was just $2.99 a few years ago. We suppose there’s a $4 premium for cards that look hand-created yet are mass-produced. Whatever. Anyway, inflation notwithstanding, Tennessee-based SFP Franchise Corp. and its affiliate Schurman Fine Papers filed for bankruptcy this week. Sure, sure, they sell $7.99 cards but at the time of filing, the debtors were down to their last $32k. 😬

This is NOT a story about disruption in the way some might expect. No, electronic cards that literally NOBODY ON THE PLANET OPENS did not destroy this business. At least significantly enough for the company to acknowledge it as a factor. People still dig physical acknowledgements. Instead, this is a story about over-expansion, poor timing, bad deals and over-reliance on one counterparty. In this case, American Greetings Corporation.

The debtors started in 1950 as a greeting card and stationary wholesaler. They expanded into franchise, retail and online over time and the expansion brought on some pain in 2008-2009 (shortly after the company re-purchased franchises). At that time, the debtors engaged with American Greetings as a strategic partner. The debtors sold American Greetings their wholesale business and brand and related trademarks. In turn, the debtors acquired the retail business previously operated by American Greetings — both in the US and Canada (PETITION Note: if you’re thinking, “I thought that brand and trademarks are really the only thing of value for retailers today, well, you’re not wrong.”). Score one for American Greetings here: it dumped its brick-and-mortar retail on the debtors right before the retail sh*tstorm hit. 👍

The deal is special in retrospect. American Greetings agreed to (i) supply the debtors product for an initial term of 7 years, and (ii) provide a royalty-free license of the trademarks for 10 years. In exchange, the debtors agreed to (i) provide fee-generating marketing services for 7 years and (ii) collect and provide point-of-sale data to American Greetings for an initial term of 7 years (for a fee). In essence, the debtors didn’t own or control the product and didn’t own or control the intellectual property. Said another way, this business was dead in 2009: the debtors just didn’t know it yet.

Well, it’s now 2020 and the debtors are, in fact, officially dead. American Greetings pulled the plug in December when it notified the debtors that it was terminating the agreements (citing default under the agreements). Instantaneously, the debtors lost access to product which, in turn, affected revenues.

All 254 stores in the US (178) and Canada (76) will close. 1,100 people are going to need to find new jobs. Trade creditors owed approximately $8mm are essentially screwed. And there will now be more empty boxes in malls. The ramifications of a liquidating retailer cannot be overstated.

The debtors will seek permission to use cash collateral to conduct, with the assistance of Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC, an orderly liquidation under chapter 11.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $6.675mm RCF (Wells Fargo Bank NA), $10mm LOC (PNC Bank NA), $38.7mm subordinated debt (AG, Carlton Cards Limited, Papyrus-Recycled Greetings Canada Ltd.)

• Professionals:

  • Legal: Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire, Nicolas Jenner)

  • Financial Advisor/CRO: Mackinac Partners LLC (Craig Boucher)

  • Liquidation Consultant: Gordon Brothers Retail Partners LLC & Hilco Merchant Resources LLC

    • Legal: Greenberg Traurig LLP (Jeffrey Wolf, Dennis Meloro)

  • Claims Agent: Omni Agent Solutions (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition Agent: Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox, Anthony Stumbo, Paul Bekker) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Subordinated Creditor: American Greetings Corporation

    • Legal: Baker & Hostetler LLP (Michael VanNiel, Adam Fletcher) & Saul Ewing Arnstein & Lehr LLP (John Demmy)

New Chapter 11 Bankruptcy Filing - Things Remembered Inc.

Things Remembered Inc.

2/6/19

This has been a rough week for "out-of-court" restructurings in the retail space. On the heals of Charlotte Russe's collapse into bankruptcy after an attempted out-of-court solution, Things Remembered Inc. filed for bankruptcy in the District of Delaware on February 6, 2019. We recently wrote about Things Remembered here. Let's dig in a bit more. 

The 53-year old retailer filed with a stalking horse purchaser, Ensco Properties LLC, in line to purchase, subject to a tight 30-day timeframe, a subset of the company's store footprint and direct-sales business. The company writes in the most Trumpian-fashion imaginable:

"Although stores not acquired will need to close, the going-concern sale wills save hundreds of jobs and potentially many more and provide an improved, and significantly less risky, recovery to stakeholders." What does "potentially many more" mean? Don't they know how many people are employed at the locations being sold as well as corporate support? Seems like a Trumpian ad lib of corresponding inexactitude. But, whatever. 

What caused the need for bankruptcy?

"Like many other retailers, the Company has suffered from adverse macro-trends, as well as certain microeconomic operational challenges. Faced with these challenges, the Company initiated multiple go-forward operational initiatives to increase brick-and-mortar profitability, such as store modernization through elimination of paper forms and the addition of iPads to streamline the personalization and sale process, and by shuttering a number of underperforming locations. The Company also sought to bolster the Debtors’ online-direct sale business, including aggressive marketing to loyal customers to facilitate sales through online channels, attracting new customers via an expanded partnership with Amazon, and increasing service capabilities for the business-to-business customer segment."

Read that paragraph and then tell us that retail management teams (and their expensive advisors) have any real clue how to combat the ails confronting retail. Elimination of paper forms? Ipads? Seriously? Sure, the rest sounds sensible and comes right out of today's standard retail playbook, i.e., shutter stores, bolster online capabilities, leverage Amazon's distribution, tapping into "loyal customers," etc. We're surprised they didn't mention AR/VR, Blockchain, "experiential retail," pop-ups, advertising on scooters, loyalty programs, and all of the other trite retail-isms we've heard ad nauseum (despite no one actually proving whether any or all of those things actually drive revenue). 

The rest of the story is crazy familiar by this point. The "challenging operating environment" confronting brick-and-mortar and mall-based retail, specifically, led to missed sales targets and depressed profitability. Naturally there were operational issues that compounded matters and, attention Lenore Estrada (INSERT LINK), "…vendors have begun to place pressure on the supply chain cost structure by delaying or cancelling shipments until receiving payment." Insert cash on delivery terms here. Because that's what they should do when a customer is mid-flush. 

Anyway, shocker: negative cash flows persisted. Consequently, the company and its professionals commenced a marketing process that landed Enesco as stalking horse bidder. Enesco has committed to acquiring the direct-sales business (which constitutes 26% of all sales in 2018 and includes the e-commerce website, hq, fulfillment and distribution center in Ohio and related assets) and approximately 128 stores (subject to addition or subtraction, but a floor set at 50 store minimum). Store closings of approximately 220 stores and 30 kiosks commenced pre-petition. A joint venture between Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC is leading that effort (which again begs the question as to how Gymboree is the only recent retailer that required the services of four "liquidators"). The purchase price is $17.5mm (subject to post-closing adjustments). $17.5mm is hardly memorable. That said, the company did have negative $4mm EBITDA so, uh, yeeeeeaaaaah. 

$18.7mm '19 revolving credit facility (Cortland Capital Markets Services LLC); $124.9mm 12% '20 TL. 

The capital structure represents the result of an August 30, 2016 out-of-court exchange that, let's be honest here, didn't do much other than incrementally lessen the debt burden, kick the can down the road and get some professionals paid. If this sounds familiar, it's because it's not all that different than Charlotte Russe in those respects. 

• Jurisdiction: D. of Delaware (Judge Gross)

• Capital Structure: $mm debt     

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (Christopher Greco, Derek Hunger, Angela Snell, Spencer Winters, Catherine Jun, Scott Vail, Mark McKane) & (local) Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire, Kimberly Brown, Matthew Pierce)

  • Legal (Canada): Davies Ward Phillips & Vineberg LLP

  • Financial Advisor/CRO: Berkeley Research Group LLC (Robert Duffy, Brett Witherell)

  • Investment Bank: Stifel Nicolaus & Co. Inc. and Miller Buckfire & Co. LLC (James Doak)

  • Liquidators: Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC

    • Legal: Pepper Hamilton LLP (Douglas Herman, Marcy McLaughlin)

  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)

• Other Parties in Interest:

  • Stalking Horse Purchaser: Enesco Properties LLC  (Balmoral Funds LLC)

    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Maxim Litvak, Joseph Mulvihill)

  • Lender: Cortland Capital Market Services LLC

    • Legal: Weil Gotshal & Manges LLP (David Griffiths, Lisa Lansio) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Sponsor: KKR & Co.

  • Official Committee of Unsecured Creditors (Jewelry Concepts Inc., Gravotech Inc., Chu Kwun Kee Metal Manufactory, Brookfield Property REIT, Inc., Simon Property Group LP)

    • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Kristin Elliott, Lauren Schlussel) & (local) Connolly Gallagher (N. Christopher Griffiths, Shaun Michael Kelly)

    • Financial Advisor: Province Inc. (Carol Cabello, Sanjuro Kietlinski, Jorge Gonzalez, Michael Martini)

New Chapter 11 Bankruptcy Filing - Charlotte Russe Holding Inc.

Charlotte Russe Holding Inc.

February 3, 2019

San Diego-based specialty women’s apparel fast-fashion retailer Charlotte Russe Holding Inc. is the latest retailer to file for bankruptcy. The company has 512 stores in 48 U.S. states. The company owns a number of different brands that it sells primarily via its brick-and-mortar channel; it has some brands, most notably “Peek,” which it sells online and wholesale to the likes of Nordstrom.

The company’s capital structure consists of:

• $22.8mm 6.75% ‘22 first lien revolving credit facility (ex-accrued and unpaid interest, expenses and fees)(Bank of America NA), and

• $150mm 8.5% ‘23 second lien term loan ($89.3mm funded, exclusive of unpaid interest, expenses and fees)(Jefferies Finance LLC). The term loan lenders have first lien security interests in the company’s intellectual property.

The company’s trajectory over the last decade is an interesting snapshot of the trouble confronting the brick-and-mortar retail space. The story begins with a leveraged buyout. In 2009, Advent International acquired the debtors through a $380mm tender offer, levering up the company with $175mm in 12% subordinated debentures in the process. At the time, the debtors also issued 85k shares of Series A Preferred Stock to Advent and others. Both the debentures and the Preferred Stock PIK’d interest (which, for the uninitiated, means that the principal or base amounts increased by the respective percentages rather than cash pay interest or dividends being paid over time). The debtors later converted the Preferred Stock to common stock.

Thereafter, the debtors made overtures towards an IPO. Indeed, business was booming. From 2011 through 2014, the debtors grew considerably with net sales increased from $776.8mm to $984mm. During this period, in May of 2013, the debtors entered into the pre-petition term loan, used the proceeds to repay a portion of the subordinated debentures and converted the remaining $121.1mm of subordinated debentures to 8% Preferred Stock (held by Advent, management and other investors). In March 2014, the debtors and its lenders increased the term loan by $80mm and used the proceeds to pay a one-time dividend. That’s right folks: a dividend recapitalization!! WE LOVE THOSE. Per the company:

In May 2014, the Debtors paid $40 million in dividends to holders of Common Stock, $9.8 million in dividends to holders of Series 1 Preferred Stock, which covered all dividends thus far accrued, and paid $65.7 million towards the Series 1 Preferred Stock principal. The Debtors’ intention was to use a portion of the net proceeds of the IPO to repay a substantial amount of the then approximately $230 million of principal due on the Prepetition Term Loan.

In other words, Advent received a significant percentage of its original equity check back by virtue of its Preferred Stock and Common Stock holdings.

Guess what happened next? Well, after all of that money was sucked out of the business, performance, CURIOUSLY, began to slip badly. Per the company:

Following fifteen (15) consecutive quarters of increased sales, however, the Debtors’ performance began to materially deteriorate and plans for the IPO were put on hold. Specifically, gross sales decreased from $984 million in fiscal year 2014 with approximately $93.8 million in adjusted EBITDA, to $928 million in fiscal year 2017 with approximately $41.2 million in adjusted EBITDA. More recently, the Debtors’ performance has materially deteriorated, as gross sales decreased from $928 million in fiscal year 2017 with approximately $41.2 million in adjusted EBITDA, to an estimated $795.5 million in fiscal year 2018 with approximately $10.3 million in adjusted EBITDA.

Consequently, the company engaged in a year-long process of trying to address its balance sheet and/or find a strategic or financial buyer. Ultimately, in February 2018, the debtors consummated an out-of-court restructuring that (i) wiped out equity (including Advent’s), (ii) converted 58% of the term loan into 100% of the equity, (iii) lowered the interest rate on the remaining term loan and (iv) extended the term loan maturity out to 2023. Advent earned itself, as consideration for the cancellation of its shares, “broad releases” under the restructuring support agreement. The company, as part of the broader restructuring, also secured substantial concessions from its landlords and vendors. At the time, this looked like a rare “success”: an out-of-court deal that resulted in both balance sheet relief and operational cost containment. It wasn’t enough.

Performance continued to decline. Year-over-year, Q3 ‘18 sales declined by $35mm and EBITDA by $8mm. Per the company:

The Debtors suffered from a dramatic decrease in sales and in-store traffic, and their merchandising and marketing strategies failed to connect with their core demographic and outpace the rapidly evolving fashion trends that are fundamental to their success. The Debtors shifted too far towards fashion basics, did not effectively reposition their e-commerce business and social media engagement strategy for success and growth, and failed to rationalize expenses related to store operations to better balance brick-and-mortar operations with necessary e-commerce investments.

In the end, bankruptcy proved unavoidable. So now what? The company has a commitment from its pre-petition lender, Bank of America NA, for $50mm in DIP financing (plus $15mm for LOCs) as well as the use of cash collateral. The DIP will roll-up the pre-petition first lien revolving facility. This DIP facility is meant to pay administrative expenses to allow for store closures (94, in the first instance) and a sale of the debtors’ assets. To date, however, despite 17 potential buyers executing NDAs, no stalking horse purchaser has emerged. They have until February 17th to find one; otherwise, they’re required to pursue a “full chain liquidation.” Notably, the debtors suggested in their bankruptcy petitions that the estate may be administratively insolvent. YIKES. So, who gets screwed if that is the case?

Top creditors include Fedex, Google, a number of Chinese manufacturers and other trade vendors. Landlords were not on the top 30 creditor list, though Taubman Company, Washington Prime Group Inc., Simon Property Group L.P., and Brookfield Property REIT Inc. were quick to make notices of appearance in the cases. In total, unsecured creditors are owed approximately $50mm. Why no landlords? Timing. Despite the company going down the sh*tter, it appears that the debtors are current with the landlords (and filing before the first business day of the new month helps too). Not to be cynical, but there’s no way that Cooley LLP — typically a creditors’ committee firm — was going to let the landlords be left on the hook here.

And, so, we’ll find out within the next two weeks whether the brand has any value and can fetch a buyer. In the meantime, Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC will commence liquidation sales at 90+ locations. We see that, mysteriously, they somehow were able to free up some bandwidth to take on an new assignment sans a joint venture with literally all of their primary competitors.

• Jurisdiction: D. of Delaware (Judge Silverstein)

• Capital Structure: $22.8mm 6.75% ‘22 first lien revolving asset-backed credit facility (ex-accrued and unpaid interest, expenses and fees)(Bank of America NA), $150mm 8.5% ‘23 second lien term loan ($89.3mm funded, exclusive of unpaid interest, expenses and fees)(Jefferies Finance LLC)

• Company Professionals:

  • Legal: Cooley LLP (Seth Van Aalten, Michael Klein, Summer McKee, Evan Lazerowitz, Joseph Brown) & (local) Bayard PA (Justin Alberto, Erin Fay)

  • Independent Director: David Mack

  • Financial Advisor/CRO: Berkeley Research Group LLC (Brian Cashman)

  • Investment Banker: Guggenheim Securities LLC (Stuart Erickson)

  • Lease Disposition Consultant & Business Broker: A&G Realty Partners LLC

  • Liquidating Agent: Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC

  • Liquidation Consultant: Malfitano Advisors LLC

  • Claims Agent: Donlin Recano & Company (*click on company name above for free docket access)

• Other Parties in Interest:

  • DIP Lender ($50mm): Bank of America NA

    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Christopher Carter) & (local) Richards Layton & Finger PA (Mark Collins)

  • Prepetition Term Agent: Jefferies Finance LLC

    • Legal: King & Spalding LLP (Michael Rupe, W. Austin Jowers, Michael Handler)

  • Official Committee of Unsecured Creditors (Valueline Group Co Ltd., Ven Bridge Ltd., Shantex Group LLC, Global Capital Fashion Inc., Jainson’s International Inc., Simon Property Group LP, Brookfield Property REIT Inc.)

    • Legal: Whiteford Taylor & Preston LLP (Christopher Samis, L. Katherine Good, Aaron Stulman, David Gaffey, Jennifer Wuebker)

    • Financial Advisor: Province Inc. (Edward Kim)

Updated 2/14/19 at 1:41 CT

New Chapter 11 Bankruptcy Filing - Specialty Retail Shops Holding Corp. (Shopko)

Specialty Retail Shops Holding Corp. (Shopko)

January 16, 2019

Sun Capital Partners’-owned, Wisconsin-based, Specialty Retail Shops Holding Corp. (“Shopko”) filed for bankruptcy on January 16, 2019 in the District of Nebraska. Yes, the District of Nebraska. Practitioners in Delaware must really be smarting over that one. That said, this is not the first retail chapter 11 bankruptcy case shepherded by Kirkland & Ellis LLP in Nebraska (see, Gordman’s Stores circa 2017). K&E must love the native Kool-Aid. Others, however, aren’t such big fans: the company’s largest unsecured creditor, McKesson Corporation ($MCK), for instance. McKesson is a supplier of the company’s pharmacies and is a large player in the healthcare business, damn it; they spit on Kool-Aid; and they have already filed a motion seeking a change of venue to the Eastern District of Wisconsin. They claim that venue is manufactured here on the basis of an absentee subsidiary. How dare they? Nobody EVER venue shops. EVER!

Anyway, we’ve gotten ahead of our skis here…

The company operates approximately 367 stores (125 bigbox, 235 hometown, and 10 express stores) in 25 states throughout the United States; it employs…

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• Jurisdiction: D. of Nebraska

• Capital Structure: see report.    

• Company Professionals:

  • Legal: Kirkland & Ellis LLP (James Sprayragen, Patrick Nash Jr., Jamie Netznik, Travis Bayer, Steven Serajeddini, Daniel Rudewicz) & (local) McGrath North Mullin & Kratz P.C. LLO (James Niemeier, Michael Eversden, Lauren Goodman)

  • Board of Directors: Russell Steinhorst (CEO), Casey Lanza, Donald Roach, Mohsin Meghji, Steve Winograd

  • Financial Advisor: Berkeley Research Group LLC

  • Investment Banker: Houlihan Lokey Capital Inc. (Stephen Spencer)

  • Liquidation Consultant: Gordon Brothers Retail Partners LLC

    • Legal: Riemer & Braunstein LLP (Steven Fox)

  • Real Estate Consultant: Hilco Real Estate LLC

  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)

• Special Committee of the Board of Directors

  • Legal: Willkie Farr & Gallagher LLP

  • Financial Advisor: Ducera Partners LLC

• Other Parties in Interest:

  • Wells Fargo Bank NA

    • Legal: Otterbourg PC (Chad Simon) & (local) Baird Holm LLP (Brandon Tomjack)

  • Official Committee of Unsecured Creditors (HanesBrands Inc., Readerlink Distribution Services LLC, Home Products International NA, McKesson Corp., Notations Inc., LCN SKO OMAHA (MULTI) LLC, Realty Income Corporation)

    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Bradford Sandler, Alan Kornfeld, Robert Feinstein) & (local) Goosmann Law Firm PLC (Joel Carney)

    • Financial Advisor: FTI Consulting Inc. (Conor Tully)

    • Expert Consultant: The Michel-Shaked Group (Israel Shaked)

Updated 3/9/19

New Chapter 11 Bankruptcy Filing - Advanced Sports Enterprises Inc.

Advanced Sports Enterprises Inc.

November 16, 2018

Another day, another retailer in bankruptcy court.

Advanced Sports Enterprises Inc. and several affiliated companies filed for bankruptcy on Friday in the District of North Carolina. The debtors are designers, manufacturers and wholesale sellers of bicycles and related equipment. The debtors utilize both online (www.performancebike.com) and brick-and-mortar channels (104 retail stores across 20 states) to sell their bikes.

The debtors blame their capital structure and the seasonal nature of their business for their fall into bankruptcy. Due to lack of liquidity, it sounds as if the debtors engaged in an operational restructuring that included stretching payables to suppliers and creditors. As you might imagine, once payments are delayed, suppliers and creditors get kind of pissed off and start imposing more aggressive payment terms. In other words, they’re not too keen on being creditors. When that happens, a company pushing the envelope is caught in a vicious cycle. Indeed, here, the debtors say that they are on pace to run out of money in January 2019.

So, the debtors intend to market their business to an array of potential purchasers: private equity funds, family offices, strategic parties, and liquidators. While that process plays out, they will close 40 stores. They seek approval of a $45mm DIP credit facility from their prepetition senior secured lender, Wells Fargo Bank NA, to fund the cases.

• Jurisdiction: D. of North Carolina

• Capital Structure: $37.9mm first lien credit facility (Wells Fargo NA). $7.375mm term loan (Advanced Holdings Co., Ltd.). Otherwise, see below.

• Company Professionals:

  • Legal: Flaster/Greenberg P.C. (William Burnett, Richard Dressel, Harry Giacometti, Douglas Stanger, Damien Nicholas Tancredi) & (local) Northern Blue LLP (John Northen, Vicki Parrott, John Paul H. Cournoyer)

  • Financial Advisor: Clear Thinking Group LLC (Joseph Marchese)

  • Investment Banker: D.A. Davidson & Co. (Michael Smith)

  • Liquidator: Gordon Brothers Retail Partners LLC

  • Real Estate Consultant: A&G Realty Partners LLC

  • Claims Agent: KCC LLC (*click on company name above for free docket access)

• Other Parties in Interest:

  • Senior Secured Lender: Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox) & (local) Williams Mullen (Holmes Harden)

  • Unsecured Creditors Committee: none appointed due to lack of creditors.

Source: First Day Declaration.

💍New Chapter 11 Filing - Samuels Jewelers Inc.💍

Samuels Jewelers Inc.

8/7/18

Let’s start by all agreeing that the pictured $900 engagement rings are outright hideous. Nobody wants those. Literally. Nobody. And so…bankruptcy.

Ok, so we’re being a bit flip here (as always) but the truth is that in addition to people not going to malls anymore, people have become increasingly comfortable purchasing jewelry over the internet. Don’t believe us? The list of growing Instagram-dominant direct-to-consumer jewelry brands seems to be growing longer than the list of professional athletes President Trump has insulted. There’s Vrai & Oro, Aurate, and several others. When a company is facing this kind of onslaught, it simply cannot be distracted by other externalities like…say, fraud at the parent level. That’s right. Per Reuters back in May:

U.S. jewelry chain Samuels Jewelers has hired a turnaround adviser at the request of its creditors in a bid to avoid the fate of brick-and-mortar retailers that filed for bankruptcy amid intensifying competition, according to people familiar with the matter.

Samuel Jewelers’ action comes as its Indian parent company, Gitanjali Gems Ltd, finds itself in legal hot water. Gitanjali’s chairman, Mehul Choksi, was accused by state-run Punjab National Bank in India of defrauding it of nearly $2 billion.

Or, even more significant, burdensome leases on its 120 leased stores in 23 states. Per the company:

The Debtor's headquarters and retail stores are leased. The Debtor does not own any real property. The aggregate monthly rent due under the leases (collectively, the "Leases") is approximately $1.7 million. The Debtor's retail store Leases generally have initial terms of ten years with varying options to extend. As of the Petition Date, the remaining terms under the Debtor's existing store Leases were widely variant, but the majority of the Leases currently will expire in or before 2023. The remainder of the Leases currently will expire between 2024 and 2028. As of the Petition Date, the Debtor owes approximately $3.0 million in unpaid current lease obligations.

And so, against this backdrop, the “bid” clearly failed because, today, Texas-based Samuels Jewelers Inc. has, indeed, filed for bankruptcy. The filing essentially marks a fitting new chapter for an enterprise so accustomed to bankruptcy court that it probably ought to be paying annual dues. Predecessor entities filed for bankruptcy in 1992, 1997, and 2003. With that historical perspective, we suppose that Gitanjali ought to be commended for extending the company’s streak outside of bankruptcy court beyond five or six years to a…gulp…commendable fifteen.

Why bankruptcy? Why now? To elaborate on our preface, a few reasons. First,“increasing competition in the retail jewelry industry, including competition by discount and other retailers, including online retailers.” So, like we said. And, second, the aforementioned fraud allegations and related India National Company Law Tribunal injunctive order against Gitanjali and other former principals of the company had the affect of (a) cutting off a major source of product historically sourced from Gitanjali or other non-debtor affiliates, (b) eliminating an oft-tapped short-term funding source, and (c) spooking third-party vendors and suppliers. Given these issues, the company opted to seek chapter 11 protection with the hope that it could stabilize operations, enhance liquidity and preserve value. In that vein, the company — despite having neither an investment banker nor a stalking horse bidder at the time of filing — hopes to sell the business as a going concern. Contemporaneously, the company hopes to assume an agreement to retain Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC as consultants to dispose of excess inventory and conduct store closing sales. Accordingly, major creditors include, as you might expect, the usual array of landlords, General Growth Properties ($GGP), Simon Property Group Inc. ($SPG), and Macerich Co. ($MAC).

Finally, the company will also seek approval of a poorly-named $100mm DIP Working Capital Facility — the majority of which will be used not for working capital but to roll-up Wells Fargo and Gordon Brothers’ loans — to fund the case until a buyer is found or the company liquidates. Anyone want to place bets on which scenario plays out?

• Jurisdiction: D. of Delaware (Judge Carey)

• Capital Structure: $84mm revolving credit facility (Wells Fargo Bank NA), $10mm term loan (GB Credit Partners LLC)

• Company Professionals:

  • Legal: Jones Day (Greg Gordon, Amanda Rush, Jonathan Fisher, Paul Green) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro)

  • Financial Advisor: Berkeley Research Group (Robert Duffy)

  • Liquidators: Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC

  • Claims Agent: Prime Clerk LLC

• Other Parties in Interest:

  • Prepetition RCF Lender: Wells Fargo Bank NA (Legal: Morgan Lewis & Bockius LLP, Julia Frost-Davies, Christopher Carter, Sandra Vrejan & (local) Reed Smith LLP, Kurt Gwynne, Jason Angelo).

  • Prepetition Term Agent & DIP Term Agent: Gordon Brothers Finance Company (Choate Hall & Stewart LLP, John Ventola, Jonathan Marshall & (local) Womble Bond Dickinson US LLP, Matthew Ward, Morgan Patterson)

New Chapter 11 Filing - Brookstone Holdings Corp.

Wellness, Entertainment & Travel Retailer Now Bankrupt

Brookstone Holdings Corp.

8/2/16

Source: Brookstone.com

Almost exactly a month ago we asked “Is Brookstone Headed for Chapter 22?” and wrote the following:

Go to Brookstone’s website for “Gift Ideas” and “Cool Gadgets” and then tell us you have any doubt. We especially liked the pop-up asking us to sign up for promotional materials one second after landing; we didn’t even get a chance to see what the company sells before it was selling us on a flooded email inbox. Someone please hire them a designer.

On Friday, Reuters reported that the company has hired Gibson Dunn & Crutcher LLP(remember them?) to explore its restructuring options. What’s the issue? Well, retail. Need there be any further explanation?

The company has roughly 120 stores (20 are in airports), approximately $45mm of debt and a Chinese sponsor in Sanpower Group Co Ltd.

This is a big change from when it first filed for bankruptcy in April 2014. At the time of that filing, the company had 242 stores and approximately $240mm in debt. The company blamed its over-levered capital structure for its inability to address its post-recession challenges. It doesn’t appear to have the same excuse now.

Upon emergence, it reportedly still had 240 stores. Clearly the company ought to have used the initial bankruptcy for more of an operational fix in addition to its balance sheet restructuring. While this could be a costly mistake, the company’s sponsor is a bit of a wild card here: Chinese sponsors tend to be more disinclined to chapter 11 proceedings than American counterparts. Will they write an equity check then?

Well, we now have our definitive answers. Yes. The company filed for bankruptcy earlier today. And whether Sanpower was disinclined to file or not, well…it’s in bankruptcy. And, it will not, at least not as of now, be writing an equity check.

The New Hampshire-based company describes itself as “a product development company and multichannel retailer that offer a number of highly distinctive and uniquely designed products. The Brookstone brand is strongly associated with cutting-edge innovation, superior quality, and sleek and elegant design.” Which is precisely why we plastered a “videocassette” emoji in our title. Because that description comports 100% with the way we view the brand. But we digress.

The company has clearly engaged in some downsizing since emerging from bankruptcy a few years ago; it notes that it currently operates 137 retail stores across 40 states with 102 of those stores located in malls and 35 in airports; it also carries 700 SKUs, the majority of which fall in one of three product categories (wellness, entertainment and travel). It sells across four product channels: mall retail, airport retail, e-commerce (brookstone.com and Amazon.com), and wholesale (including TV shopping which, we believe, means home shopping network sort of stuff). For fiscal year 2017, the company had net sales of $264mm and negative EBITDA was $60mm. For the first half of 2018, net sales were $74mm and negative EBITDA was $29mm. Annualize that first number and you’re looking at a pretty precipitous drop in revenue!

The company highlights the juxtaposition between its mall and retail sales channels. Whereas the former generated ‘17 net sales of $137.9mm and negative EBITDA of $30mm, the latter generated net sales of $37.7mm and “adjusted” EBITDA of $1.4mm. We haven’t seen the numbers but we’re guessing the adjustment takes this statement into account:

Moreover, the net sales and adjusted EBITDA figures do not tell the whole story with respect to the productivity of the Airport retail outlets. As described further below, supply chain issues have limited the sales potential that would otherwise be captured with a healthy network of suppliers. The Debtors believe that through the bankruptcy they can correct the supply chain issues and allow the airport stores to greatly increase their profitability.

🤔🤔 Seeing a lot of adjustments on the basis of “belief” these days.

Likewise, the company claims that aberrational externalities affected its e-commerce operations as well. There, the company claims $55.2mm in net sales and negative adjusted EBITDA of $1mm. The company believes that the discontinuation of its catalog mailings had a detrimental impact on its e-commerce (and store retail) numbers. It notes:

As with the airport retail segment, the net sales and adjusted EBITDA associated with the Debtors’ ecommerce segment is not reflective of its true potential due to supply chain difficulties. In addition, and as described further below, technology issues and a turnover of senior level management at the e-commerce segment led to underperformance at a segment that should be performing at a significantly higher level. The Debtors believe that the bankruptcy filing will afford the Debtors the opportunity to right the operational defects that have artificially stymied the overall profitability that should be incumbent to the Debtors’ online presence.

Finally, the company claims its wholesale business has a lot of demand and has been under-utilized due to the same supply chain issues affecting its other channels.

In other words, when we said earlier that “[c]learly the company ought to have used the initial bankruptcy for more of an operational fix,” we hit the nail on the head. The company notes:

Following the 2014 Bankruptcy, sales continued to lag almost immediately. For the years ended 2014 and 2015, net sales were pegged at approximately $420 million and $389 million respectively, while adjusted EBITDA was booked at negative $38 million and negative $24 million respectively. While a number of factors contributed to the underperformance, sourcing of products and supply chain difficulties were the major drivers.

But of course there’s an overall macro overlay here too:

The drop in net sales in 2016 and 2017 was further exacerbated by the decline in the mall model as a means for consumers to buy products of the type sold by Brookstone. During this time, foot traffic at mall locations decreased drastically, as consumers continued to seek out products online as a replacement for traditional brick and mortar shopping.

The company’s e-commerce efforts could not pick up the slack. It blames leadership changes, a new platform (and a loss of data and indexing that resulted), and the discontinuation of the hard copy catalog for this. The company notes:

Because the catalogs were directly responsible for a significant portion of the web traffic on the Debtors’ e-commerce site, the negative impact on the Debtors’ online sales was dramatic.

Anyone who thinks that e-commerce can survive independent of paper mailings ought to re-read that sentence. It also explains the fifteen Bonobos catalogs we get every week and the 829-pound Restoration Hardware calalog we receive every quarter. Remember the buzzword of the year: “multi-channel.” Case and point.

To make this already (too) long story short, Sanpower kept sinking money into this sinking ship until it finally decided that it was just throwing good money after bad. Callback to July when we said they’re disinclined to chapter 11…well, lighting millions of dollars on fire will make you a little more inclined. 💥💥

Powered by a $30mm DIP credit facility (not all new money: some will be used to refi out the ABL) from its prepetition (read: pre-bankruptcy) lenders, the company intends to use the bankruptcy filing to execute an orderly store closing process and market and sell the business. This is clearly why it went to great lengths to pretty up its e-commerce, mall and wholesale businesses in its narrative. Still, the company has been marketing the business for a month and, thus far, there are no biters. Per the agreement with its DIP lenders, the company has until September 2018 to effectuate its sale process. You read that right: a company that bled out over a period of years has two months on life support.

Major creditors include Chinese manufacturers and, as you might expect, the usual array of landlords, General Growth Properties ($GGP), Simon Property Group Inc. ($SPG), and Macerich Co. ($MAC). Given the positioning of the respective businesses, we wouldn’t expect much of a mall business to survive here regardless of whether a buyer emerges.

• Jurisdiction: D. of Delaware (Judge Shannon)

• Capital Structure: $70mm ABL Revolver (Wells Fargo NA) & $15mm Term Loan (Gordon Brothers Finance Company), $10mm second lien notes (Wilmington Trust), $39.4mm Sanpower Secured Notes, $46.6mm Sanpower Unsecured Notes

• Company Professionals:

  • Legal: Gibson Dunn & Crutcher LLP (David Feldman, Matthew Kelsey, Matthew Williams, Keith Martorana, Jason Zachary Goldstein) & (local) Young Conaway Stargatt & Taylor LLP (Michael Nestor, Sean Beach, Andrew Magaziner)

  • Financial Advisor: Berkeley Research Group LLC

  • Investment Banker: GLC Advisors & Co. (Soren Reynertson)

  • Liquidator Consultants: Gordon Brothers Retail Partners LLC & Hilco Merchant Resources LLC

  • Claims Agent: Omni Management Group (*click on company name above for free docket access)

• Other Parties in Interest:

  • DIP Agent: Wells Fargo NA (Morgan Lewis & Bockius LLP, Glenn Siegel, Christopher Carter & Burr & Forman LLP, J. Cory Falgowski)

  • DIP Term Agent: Gordon Brothers Finance Company (Choate Hall & Stewart, Kevin Simard, Jonathan Marshall & Richards Layton & Finger PA, John Knight)

  • Indenture Trustee: Wilmington Trust NA

New Chapter 11 Bankruptcy - A'GACI LLC

A'GACI LLC

• 1/9/17 Recap: Texas-based fast-fashion retailer of women's apparel and accessories filed for bankruptcy because, well, retail retail retail. Happy New Year, everyone! The company's "target demographic is confident women who are comfortable with their appearance and enjoy showcasing their look." Hmmm. From that description, we would have expected graphics of models that aren't just a size 0 (see below), but we digress. The 76-store company specializes in clearance pricing discounts to ship merchandise quickly and innovate with the trends; it did $136.2mm of gross sales in the fiscal period ended 11/25. 9.4% of that was e-commerce. The company blames its bankruptcy filing on (i) "unsuccessful brick and mortar expansion efforts," (ii) the move to online shopping, (iii) difficulty with merchandising and inventory management, and (iv) weather. On that last point, 24 stores were at least temporarily closed due to hurricanes in '17 (in Texas, Florida and Puerto Rico, with two stores in PR still closed), resulting in a $7.2mm EBITDA hit for the year. The company pursued a number of operational initiatives pre-petition including rent-concession negotiations with landlords. The landlords apparently wouldn't play ball. Now twelve of them will see their leases rejected: the company has already vacated the premises effective 1/8. And a liquidation agent has been hired. In total, "at least 49 underperforming brick and mortar store locations" may be closed.  Contemporaneously with the lease review and liquidation process, the company will attempt a refinancing or sale of the company while enjoying the "breathing spell" afforded by bankruptcy. The company intends to use cash collateral to finance the case.    
• Jurisdiction: W.D. of Texas 
• Capital Structure: $10mm '18 RCF (JPMorgan Chase Bank NA), $4.265mm TL (Bank of America NA)     
• Company Professionals:
  • Legal: Haynes and Boone LLP (Ian Peck, David Staab)
  • Financial Advisor: Berkeley Research Group LLC
  • Investment Banker: SSG Advisors LLC 
  • Real Estate Agent: A&G Realty Partners LLC
  • Liquidation Agent: Gordon Brothers Retail Partners LLC
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:

Source: First Day Declaration

New Chapter 11 Bankruptcy - Shiekh Shoes LLC

Shiekh Shoes LLC

• 11/29/17 Recap: More retail in bankruptcy. Here, the retailer of footwear, apparel and accessories aimed at the urban subculture has filed for bankruptcy. Of note, the company has 124 specialty retail store locations across ten states; it also owns "e-tailer" Karmaloop, which, itself, was in bankruptcy a few years ago. Interestingly, the Karmaloop transaction is now riddled in controversy and serves as a cautionary tale to any purchaser of distressed retail assets like customer lists which, as we've seen from a variety of retail bankruptcies of late, is often one of the more "valuable" assets a retailer has. Data, baby, data! Of course, the data needs to be current and relevant as opposed to technologically engineered and enhanced. Which, the company alleges, is exactly what Comvest Partners did with Karmaloop's customer lists. The company notes, "The Debtor’s decision to acquire Karmaloop was based on Comvest’s representation that it had accumulated approximately 6 million unique customer email addresses, 3.7 million of which were alleged to be responsive/active consumers. After the acquisition was finalized in March of 2016, however, the Debtor found out that more than 80% of these emails were no longer valid and the overall health status of the Karmaloop email database/system was in very poor condition." The company continues, "The evidence discovered by the Debtor’s CTO and E-Commerce Director further indicated a concerted effort by Comvest/Karmaloop executives, and third party email ecommerce marketer, Klaviyo, to conceal the poor condition of the email list to give the appearance to prospective buyers that Comvest had “stabilized” losses and “grown” the business since taking over after Karmaloop’s prior bankruptcy in 2015 (out of which Comvest purchased Karmaloop). This was achieved by, among other means, constantly switching IP addresses so the company would not be blacklisted, as well as changing the code on both the Karmaloop and PLNDR sites to double-count traffic on the websites. Interestingly, the “double-pixel” (the means through which Karmaloop was doublecounting traffic on the websites to create the appearance the websites were experiencing increased traffic) was removed from Karmaloop’s website shortly before the Debtor took over and site traffic quickly nosedived. Thus, the Debtor has reason to believe Comvest knew the representations it made in the offering memoranda were false and it took affirmative steps to cover it up." As if this wasn't enough, the company also discovered that its "confidential" email list was in the possession of another business, the result of a previously-undisclosed pre-acquisition settlement between Karmaloop and a vendor. On account of these issues, it looks like the company and Comvest are primed for a bankruptcy court battle royale. Compounding matters is the company's reliance on Nike Inc. ($NKE) for product. Nike, the company notes, refused to ship product to the company without cash in advance payment; it also didn't support the company's attempted Midwest expansion. Unfortunately, that lack of support came after the company had already committed the capital to pursue said expansion. Whoopsies. Now, the company is unwinding those efforts. The company is also planning to close 31 stores. Yay #retailapocalypse! The company has no plan in bankruptcy other than to leverage the appropriate provisions of the bankruptcy code to pursue a restructuring of leases and its debt. Liquidation isn't out of the realm of possibility which, naturally, isn't great Christmas news for the company's 1,743 employees. One final note: the company noted soft sales in men's shoes (Nike and Brand Jordan): this seems consistent with the broader footwear narrative that specialty footwear and Adidas are eating into Nike's market share. 
• Jurisdiction: C.D. of California (Judge Zurzolo)
• Capital Structure: $20mm RCF (State Bank and Trust Company & Comvest Capital II LP), $15mm unsecured LOC    
• Company Professionals:
  • Legal:  SulmeyerKupetz PC (David Kupetz, Asa Hami, Steven Werth)
  • Financial Advisor:  KGI Advisors Inc.
  • Real Estate Advisors: Gordon Brothers Retail Partners LLC
• Other Parties in Interest:
  • Comvest Partners II LP
    • Legal: Goldberg Kohn Ltd. (Randall Klein, Dimitri Karcazes) & (local) Robins Kaplan LLP (Scott Gautier, Kevin Meek)

Updated 11/30/17

New Chapter 11 Filing - Model Reorg Acquisition LLC (aka Perfumania Inc.)

Model Reorg Acquisition LLC (Perfumania Inc.)

• 8/26/17 Recap: New York-based vertically-integrated specialty retailer (226 retail locations, mostly mall-based) and wholesale distributor of perfumes and fragrances (to the likes of Sears, Target, Walmart and Walgreens) filed for bankruptcy pursuant to a prepackaged plan of reorganization. The company is seeking approval of a $83,750,000 Wells Fargo DIP facility ("DIP") which will roll into an exit facility. What caused the filing? The overall retail bloodbath, naturally. Since 2015, the company has lost tens of millions of dollars, closed 105 retail locations, decreased the pace of brick-and-mortar openings and focused efforts - like the rest of the retail world - on e-commerce expansion. This way you could buy your one gallon bottle of CK One online rather than in a crappy mall stall. Awesome. The structure of this case is as follows: the DIP requires a completed case within 90 days to ensure that the reorganized (and newly private) company can take advantage of Q4 seasonality. The prepackaged plan leaves general unsecured creditors unimpaired and reinstates the unsecured notes. It also provides a $2/share recovery for shareholders who opt-in to a release of principals (notably, the shares were trading at $1.33/share at Friday's market close). The stockholder consideration will be paid via a $14.26mm equity infusion, which also serves as consideration for 100% of the reorganized equity. The transaction also preserves approximately $40mm of net operating losses and other tax attributes that will inure to the benefit of the owners. 
• Jurisdiction: D. of Delaware (Judge Sontchi)
• Capital Structure: $175mm senior credit facility ($18.78mm funded)(Wells Fargo Bank), $125.4mm unsecured debt +$54.8mm accrued and unpaid interest (3 different notes). Public equity ($PERF).     
• Company Professionals:
  • Legal: Skadden Arps Slate Meagher & Flom LLP (J. Gregory Milmoe, Lisa Laukitis, Raquelle Kaye, Anthony Clark)
  • Financial Advisor: Ankura Consulting Group LLC (Stephen Marotta)
  • Investment Banker: Imperial Capital LLC (Robert Warshauer)
  • Real Estate Advisor: A&G Realty Partners LLC (Andrew Graiser)
  • Liquidators: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Agent to Senior Credit Facility: Wells Fargo Bank
    • Legal: Otterbourg P.C. (Daniel Fiorillo)
  • CIII Holdings LLC
    • Legal: Nastasi Partners PLLC (Ancela R. Nastasi, Marshall E. Tracht, Moshie Solomon, William S. Katchen, Andrew Gottesman) & (local) Morris Nichols Arsht & Tunnell LLP (Robert Dehney, Curtis Miller)

Updated 9/18/17

First Day Declaration filed 8/26/17

New Chapter 11 Filing - rue21 Inc.

rue21 Inc.

• 5/15/17 Recap: Pennsylvania-based specialty fashion retailer (owned by private equity shop Apax Partners LP) with 1184 brick-and-mortar locations (pre recent closing initiative) in various strip centers, regional malls and outlet centers filed for bankruptcy to (i) further revamp its e-commerce strategy, (ii) improve the in-store experience, (iii) right-size the store footprint and lease portfolio, (iv) de-lever its capital structure, and (v) effectuate a long-term business plan under its relatively new management. The numbers here are interesting: the company had a negative EBITDA swing of approximately $51mm from 2015 to 2016 - despite rising sales. The company's girls' division got decimated due to "an evolution of customer tastes." Wow! Who knew that teenage girls have fickle fashion tastes? These merchandising issues combined with (a) supply chain issues (heightened - in a self-fulfilling kind of way - by all of the rumors surrounding the company's bankruptcy), (b) "the shift away from brick-and-mortar retail sales to online channels," AND (c) a "not as robust" e-commerce presence relative to competitors, to put the company in a tough spot. A digression: we have previously noted David Simon's comments on the Simon Properties Group (SPG) earnings call from 4/27/17 that SPG is NOT experiencing a decline in traffic - though he offered absolutely ZERO data to back that up. According to SPG's own website, there are currently 90 rue21 locations in SPG properties (which translates to nearly 8%): we're curious to see whether any of these 90 locations will be featured in store closing motions coming soon to a bankruptcy court near you; indeed, in the first instance, it appears that some already are). The company is proposing a deal whereby the Term Lenders will effectively own the majority of the company post-bankruptcy after rolling-up a $100 DIP credit facility (applied in addition to $50mm of new money to be rolled into an exit facility). They've been so kind so as to give general unsecured creditors (read: the little guys) a 4% equity kiss - but only if they vote to accept the plan. Otherwise, the "death trap" door opens and general unsecured creditors end up with nada. We're sure a creditors' committee will have something to say about that. 
• Jurisdiction: W.D. of Pennsylvania
• Capital Structure: $150mm RCF ($78mm funded)(Bank of America), $521mm '20 TLB (Wilmington Savings Fund Society as successor to JPMorgan Chase Bank NA), $239mm '21 9% unsecured bonds (Wells Fargo Bank NA).    
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jonathan Henes, Nicole Greenblatt, Robert Britton, George Klidonas) & (local counsel) Reed Smith LLP (Eric Schaffer, Jared Roach)
  • Financial Advisor: Berkeley Research Group LLC (Stephen Coulombe, Kyle Richter, Patrick Farley)
  • Investment Banker: Rothschild Inc. (Neil Augustine, Jonathan Brownstein)
  • Real Estate Advisor: A&G Realty Partners LLC
  • Liquidator: Gordon Brothers Retail Partners LLC
    • Legal: Greenberg Traurig LLP (Nancy Peterman)
  • Claims Agent: KCC (*click on company name for access to the free docket)
• Other Parties in Interest:
  • ABL Agent and DIP ABL Agent: Bank of America
    • Legal: Morgan Lewis & Bockius LLP (Matthew Furlong, Marc Ledue, Julia Frost-Davis) & (local) Buchanan Ingersoll & Rooney PC (James Newell, Timothy Palmer, Kelly Neal)
  • TL Agent and DIP TL Agent: Wilmington Savings Fund Society FSB and Term Lender Group (Bayside Capital LLC, Benefit Street Partners LLC, Bennett Management Corporation, Citadel Advisors LLC, Eaton Vance Management, JPMorgan Chase Bank NA, Octagon Credit Investors LLC, Southpaw Credit Opportunity Master Fund LP, Stonehill Capital Management LLC, Voya Investment Management)
    • Legal: Jones Day LLP (Scott Greenberg, Michael J. Cohen, Jeffrey Bresch, Genna Ghaul)
    • Financial Advisor: PJT Partners
  • Indenture Trustee: Wells Fargo Bank NA
    • Legal: Milbank Tweed Hadley & McCloy LLP (Gerard Uzzi, Robert Nussbaum, Eric Stodola)
  • Sponsor: Apax Partners LP
    • Legal: Simpson Thacher & Bartlett LLP (Elisha Graff, Nicholas Baker, Jonathan Endean) & Duane Morris LLP (Joel Walker, Kenneth Argentieri)
  • Official Committee of Unsecured Creditors
    • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Seth Van Aalten, Michael Klein, Lauren Reichardt) & Fox Rothschild LLP (John Gotaskie Jr.)
    • Financial Advisor: FTI Consulting Inc. (Samuel Star)

Updated 7/12/17

New Chapter 11 Filing - Gordmans Stores Inc.

Gordmans Stores Inc.

• 3/13/17 Recap: Clearly Warren Buffett doesn't own this dog. The Omaha, NE-based publicly-traded (GMAN) specialty retailer (apparel and home fashions) with 72 stores in 16 states (according to PE sponsor Sun Capital Partners) or 106 stores in 22 states (according to the company) filed bankruptcy to continue the 5-month long evisceration of Sun Capital Partners' retail portfolio. Oh, and liquidate. Choice quote: "It is likely that other retailers may commence chapter 11 cases in the near term, as retail is set to replace the troubled oil and gas industry as the most distressed sector this year." Just in case anyone is scratching their heads as to how this liquidation could possibly be happening, note that e-commerce made up less than 1-percent of the Company's sales. This REALLY begs the question: what value was Sun Capital Partners bringing to the table? Do they not have operating partners? Sheesh.
• Jurisdiction: D. of Nebraska
• Capital Structure: $68.75mm RCF (Wells Fargo) + $31.25mm RCF (PNC Bank NA) of which $29mm in total outstanding, $30mm TL (Wells Fargo - $15mm, Pathlight - $7.5mm & Gordon Brothers Finance - $7.5mm)($27.9mm outstanding). 
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jayme Sprayragen, Patrick Nash, Brad Weiland, Jamie Netznik, Alexandra Schwarzman) & Kutak Rock LLP (Lisa Peters, Jeffrey Wegner)
  • Financial Advisor: Clear Thinking Group LLC (Joseph Marchese)
  • Investment Banker: Duff & Phelps Securities LLC (Joshua Benn)
  • Proposed Stalking Horse Liquidators: Tiger Capital Group LLC & Great American Group LLC
  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on company name for docket)
• Other Parties in Interest:
  • Wells Fargo Bank, NA
    • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox) & Greenberg Traurig LLP (Jeff Wolf) & (local) Croker Huck Kasher DeWitt Anderson & Gonderinger LLP (Robert, Gonderinger, David Skalka)
  • Sponsor: Sun Capital Partners
    • Legal: Morgan Lewis & Bockius LLP (Neil Herman)
  • Potential Bidder: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
    • Legal: Paul Hastings LLP (Chris Dickerson, Matthew Murphy, Marc Carmel) & (local) Telpner Peterson Law Firm LLP (Charles Smith, Nicole Hughes)
  • Official Committee of Unsecured Creditors
    • Legal: Frost Brown Todd LLC (Ronald Gold, Douglas Lutz, Adam J. (A.J.) Webb) & (local) Koley Jessen PC (Brian Koenig)
    • Financial Advisor: Province Inc. (Paul Huygens)

Updated 4/14/17

New Chapter 11 Filing - Gander Mountain Company

Gander Mountain Company

• 3/10/17 Recap: Preppers alert! The Minneapolis-based outdoor retailer that specializes in guns guns and more guns has run out of "dry powder" (score!) and finds itself in chapter 11. This comes around the same time that the Cabela's/Bass merger looks to be hanging by a thread. Tough time for outdoor retail. On the brightside, folks who are so scared by the recent election can now get a break on MREs and other survival gear as they go off-grid or to Canada. So, there's that.
• 5/3/17 Update: The company has sold to Camping World Inc. and, attendant to the sale, entered into an agency agreement with a JV of liquidating firms noted below to handle the assets left out of the sale. 
• Jurisdiction: D. of Minnesota
• Capital Structure: $390mm ABL (Wells Fargo Bank NA) & $35mm TL (Pathlight Capital LLC) debt
• Company Professionals: 
  • Legal: Fredrikson & Byron PA (Ryan Murphy, Clinton Cutler, Cynthia Moyer, James Brand, Sarah Olson, Steven Kinsella)
  • Financial Advisor: Lighthouse Management Group (Timothy Becker, James Bartholomew)
  • Investment Banker: Houlihan Lokey Capital Inc. (Stephen Spencer)
  • Real Estate Advisor: Hilco Real Estate LLC (Ryan Lawlor)
  • Liquidators: Tiger Capital Group LLC (Dan Kane, Michael McGrail), Great American Group LLC (Scott Carpenter, Alan Forman), Gordon Brothers Retail Partners LLC (Mackenzie Shea), Hilco Merchant Resources LLC (Ian Fredricks)
    • Legal for Liquidators: Wachtell Lipton Rosen & Katz (Scott Charles, Neil Snyder) & Riemer & Braunstein LLP (Steven Fox)
  • Claims Agent: Donlin Recano (*click on the company above for free docket)
• Other Parties in Interest:
  • Prepetition ABL & DIP Lender: Wells Fargo Bank NA
    • Legal: Choate Hall & Stewart LLP (Sean Monahan, Kevin Simard)
  • Term Loan Agent: Pathlight Capital LLC
    • Legal: Morgan Lewis & Bockius LLP (Mark Silva, Julia Frost-Davis, Amelia Joiner)
  • Official Committee of Unsecured Creditors
    • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Keara Waldron, Barry Bazian) & (local) Barnes & Thornburg LLP (Connie Lahn, Peter Clark, Christopher Knapp, Roger Maldonado)
    • Financial Advisor: FTI Consulting LLC (Steven Simms, Dewey Imhoff, Matt Diaz, Timothy Gaines, Jessica Jedynak, Clement Chiun)
  • Buyer: Camping World Inc.
    • Legal: Latham & Watkins LLP (Zachary Judd, Caroline Reckler, Matthew Warren, Jason Gott)

Updated 5/3/17

New Chapter 11 Filing - hhgregg Inc.

hhgregg Inc.

• 3/6/17 Recap: Indianapolis-based (and formerly publicly-traded - HGGG) brick-and-mortar retailer of appliances, consumer electronics, home products (read: all things that millennials don't buy) FINALLY filed for bankruptcy after an endless barrage of negative news stories, including reports of 88 store closures. The company's distress - brought on by trends afflicting the retail space generally and repeated to death in each and every retail bankruptcy filing, e.g., declining mall traffic, onerous leases, etc., - was exacerbated by its credit card program with Synchrony Bank and the need to post letters of credit to collateralize Synchrony's acquired receivables ($3mm paid, another $14mm owed). Note: there's a commentary here about consumer lending. The filing is intended to enable the company to continue with store closing sales and potentially find a buyer for its remaining locations.
• Jurisdiction: S.D. of Indiana
• Capital Structure: $300mm '21 credit facility ($56mm out)(Wells Fargo)     
• Company Professionals:
  • Legal: Morgan Lewis & Bockius LLP (Neil Herman, Rachel Jaffe Mauceri, Benjamin Cordiano, Katherine Lindsay, Matthew Ziegler, Michaela Dragalin) & (local) Ice Miller LLP (Jeffrey Hokanson, Sarah Fowler)
  • Financial Advisor: Berkeley Research Group (Robert Duffy)
  • Investment Banker: Stifel & Miller Buckfire & Co. (James Doak)
  • Liquidators: Hilco Merchant Resources LLC (Ian Fredericks) and Gordon Brothers Retail Partners LLC (Michael Chartock) 
    • Legal: Kirkland & Ellis LLP (Patrick Nash, Bradley Weiland, Timothy Bow)
  • Real Estate Advisor: Hilco Real Estate LLC (Ryan Lawlor)
  • Asset Disposition Advisor: Malfitano Advisors LLC (Joseph Malfitano)
  • Claims Agent: Donlin Recano (*click on company name for free docket)
• Other Parties in Interest:
  • Agent for Prepetition Secured Lender & DIP Lender: Wells Fargo
    • Legal: Choate Hall & Stewart LLP (John Ventola, Sean Monahan, Jonathan Marshall) & Faegre Baker Daniels LLP (Jay Jaffe, Terry Hall)
  • Official Committee of Unsecured Creditors
    • Legal: Cooley LLP (Cathy Hershcopf, Seth Van Aalten, Richelle Kalnit, Robert Winning, Melissa Boyd) & (local) Bingham Greenebaum Doll LLP (Whitney Mosby, Thomas Scherer, James Irving)
    • Financial Advisor: Province Inc. (Stilian Morrison)

Updated 4/3/17

New Chapter 11 Filing - BCBG Max Azaria Global Holdings LLC

BCBG Max Azaria Global Holdings LLC

• 3/1/17 Recap: Fashion powerhouse founded in 1989 filed for bankruptcy yesterday with a plan to optimize optionality: within the next six months, the company will dual track a potential debt-for-equity transaction (its second in 2 years) and a sales process to allow the business to continue as a going concern. This process comes on the heels of an operational restructuring which dramatically decreased the company’s brick-and-mortar footprint, with ~120 of ~550 stores already closed and attendant headcount reductions initiated. This is another sad retail story: macro retail headwinds (read: Amazon and decreased brand loyalty), too much debt, poor wholesale and IP licensing strategies, and too much unjustifiable stateside and global growth. Make no mistake: Amazon is a big story in all of this recent retail bloodshed but these bankruptcies wouldn’t be happening if that story wasn’t compounded by tunnel vision and poor strategy - here, marked, notably, by no recognizable online presence. Now, the restructuring professionals are going to earn their keep, devising a fast-track multi-tier process to try and keep this thing out of the liquidation bin. On an aside, we'd like to point out that, again, Simon Property Group and GGP Limited Partnership have made notices of appearances in this case so anyone who says that the A Mall operators are unharmed by the recent bloodbath in retail is smoking crack. Footnote: neither Twitter nor Sears can catch a break; they are both owed hundreds of thousands of dollars.
• Jurisdiction: S.D. of New York
• Capital Structure: ~$460mm debt. $82mm ABL Facility (Bank of America), $35mm TL Tranche A, $4.2mm TL Tranche A-1, $48.5mm Term Loan Tranche A-2, $0 (undrawn) Term Loan Tranche A-3, $289.4mm Term Loan Tranche B (Guggenheim Corporate Funding LLC).     
• Company Professionals:
  • Legal: Kirkland & Ellis LLP (Jayme Sprayragen, Christopher Marcus, Joshua Sussberg, Benjamin Rhode, John Luze)
  • Financial Advisor: AlixPartners LLC (Holly Feder Etlin, Deborah Reiger-Paganis)
  • Investment Banker: Jefferies LLC (Jeffrey Finger)
  • Liquidators: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
    • Legal: Malfitano Partners (Joseph Malfitano)
  • Claims Agent: Donlin Recano (*click on company name for docket)
• Other Parties in Interest:
  • Bank of America (as ABL DIP Agent and Prepetition ABL Agent)
    • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Christopher Carter, Robert Barry, Matthew Ziegler)
  • Guggenheim Corporate Funding LLC (as TL DIP Agent and Prepetition Tranche B TL Lenders)
    • Legal: Weil (Matthew Barr)
  • Allerton Funding LLC
    • Legal: Winston & Strawn LLP (Daniel McGuire, Gregory Gartland)
  • Silvereed (Hong Kong) Limited
    • Legal: Kramer Levin Naftalis & Frankel LLP (Robert Schmidt, Jonathan Wagner)
  • Official Committee of Unsecured Creditors (GGP Inc. & Simon Property Group)
    • Legal: Pachulski Stang Ziehl & Jones LLP (Robert Feinstein, Bradford Sandler, Jeffrey Pomerantz, Maria Bove)
    • Financial Advisor: Zolfo Cooper LLC

Updated 3/28/17

New Chapter 11 Filing - Marbles Holdings LLC

Marbles Holdings LLC

• 2/6/17 Recap: The Chicago-based brainiacs behind the specialty retailer that sells games, puzzles, books and software apparently weren't smart enough to run a sustainable business. Consequently, Marbles Holdings filed a Chapter 11 to find a buyer for certain assets and liquidate the remainder. A proposed sale of IP and a wind-down of the 37 mall-based locations (including one in the ultimate "tourist mall," the World Trade Center, and many others in the, cough, "A Malls" owned by Westfield, Simon Properties, and General Growth Properties) and six in-store concept stores within Macy's will be funded pursuant to a $900k DIP. Choice quote in the first day declaration, "It is likely that other retailers may commence chapter 11 cases in the near term." Ominous. 
• Jurisdiction: N.D. of Illinois
• Capital Structure: ~$17.5mm secured debt (Amzak Capital Management, AMPR Marbles Investors LLC)
• Company Professionals:
  • Legal: Adelman & Gettleman LLP (Howard Adelman, Henry Merens, Erich Buck, Alexander Brougham)
  • Liquidator: Gordon Brothers Retail Partners LLC
  • Investment Banker: Hilco IP Services LLC d/b/a Hilco Streamback
  • Claims Agent: Garden City Group LLC
• Other Parties in Interest
  • Amzak Capital Management
    • Legal: Holland & Knight LLP (Barbra Parlin)

Updated 2/10/17

New Chapter 22 Filing - Eastern Outfitters LLC

Eastern Outfitters LLC

• 2/5/17 Recap: Seems like chapter 22 bankruptcies are the "it" thing now: everyone's doing it. Last year, Versa Capital Management bought the company in the Vestis Group bankruptcy and, now, Sports Direct looks to pick up the pieces in yet ANOTHER sale of the Bob's Stores and Eastern Mountain Sports retail properties. Top creditors include Under Armour and Google which says something about (a) why UA's growth numbers were considerably off last quarter and (b) the cost of Google SEO for companies in this internet age.
• Jurisdiction: D. of Delaware    
• Capital Structure: $41mm RCF (PNC Bank), $42mm TL (Sportsdirect) 
• Company Professionals:
  • Legal: Bracewell LLP (Robert Burns, Jennifer Feldshur, David Riley, Mark Dendinger) & (local) Cole Schotz (Norman Pernick, Marion Quirk, Katharina Earle)
  • Turnaround Advisor: AlixPartners LLC (Spencer Ware, Susan Brown, Afshin Azhari)
  • Replacement Turnaround Advisor: Meru LLC (Nicholas Campbell, Timothy Meighan)
  • Financial Advisor: Lincoln Partners Advisors LLC  (Alexander Stevenson)
  • Liquidators: Hilco Merchant Resources LLC & Gordon Brothers Retail Partners LLC
    • Legal: Curtis Mallet-Provost Colt & Mosle LLP (Steven Reisman) & (local) Womble Carlyle Sandridge & Rice LLP (Mark Desgrosseilliers)
  • Asset Disposition Advisor & Consultant: Malfitano Advisors LLC (Joseph Malfitano)
  • Claims Agent: KCC (*click on company name for docket)
• Other Parties in Interest:
  • Purchaser: SportsDirect.com Retail Ltd.
    • Legal: Greenberg Traurig LLP (Nancy Mitchell, Maria DiConza)
  • First Lien Lender: PNC Bank, NA
    • Legal: Blank Rome LLP  (Regina Kelbon, Gregory Vizza)
  • Official Committee of Unsecured Creditors
    • Legal: Cooley LLP (Jay Indyke, Cathy Hershcopf, Richelle Kalnit, Sarah Carnes) & (local) Drinker Biddle & Reath LLP (Steven Kortanek, Patrick Johnson, Robert Malone)
    • Financial Advisor: Province Inc. (Paul Huygens, Carol Cabello, Sanjuro Kietlinski, Jin Lai Dong)

Updated 5/31/17