🚚New Chapter 11 Bankruptcy Filing - New England Motor Freight Inc.🚚

New England Motor Freight Inc.

February 11, 2019

New England Motor Freight Inc. (“NEMF”) and its affiliated debtors filed for bankruptcy in the District of New Jersey. NEMF provides less-than-truckload transportation services; its debtor affiliates also provide, among other things, truckload carrier services, equipment leasing, third party logistics services, transportation brokerage services, and non-vessel operation common carrier operations between the US and Puerto Rico. Collectively, the debtors employ approximately 3,450 full-time and part-time employees, of which 1,900 are members of the International Association of Machinists and Aerospace Workers, AFL-CIO and are covered by collective bargaining agreements. While the company generated gross revenues around $370mm in each of the last two fiscal years, it filed for bankruptcy to effectuate (a) an orderly liquidation of the majority of its business and (b) the sale of its truckload and third-party logistics businesses (which, together, account for approximately 9% of the company’s revenues). The company has approximately $57.1mm of vehicle financing debt exclusive of interest and fees and another $30.4mm in outstanding letters of credit.

Interestingly, the company notes:

While the company’s operations were profitable for decades since the current ownership group acquired NEMF in 1977, the Debtors have suffered a downward trend over recent years, which was exacerbated in late 2018 by the unexpected loss of key accounts, the shortage of drivers, a new Union contract with onerous retroactive terms, and the L/C Lenders’ ultimate unwillingness to restructure the Debtors’ letters of credit obligations under terms acceptable to the Debtors.

And, here, more on the union situation:

Changes and competition within the industry have had an ongoing negative impact on the Debtors’ revenues. The Debtors’ workforce is made up of approximately 3,450 full-time and part-time employees. The Union workforce consists of approximately: 1,425 truck drivers, and 475 dock workers, for a total of approximately 1,900 Union employees. The non-union workforce consists of, approximately: 145 truck drivers at Eastern, 600 part-time workers (primarily dock workers), and 805 other employees, for a total of approximately 1,550 non-union employees. Employee costs for the Debtors are, in the aggregate, substantially above industry norms. Most of the LTL companies competing with the Debtors operate under non-unionized conditions. At the same time, there has developed an industry-wide shortage of drivers, putting the Debtors, with an aging fleet of vehicles, at a severe disadvantage. (emphasis added)

Given the company’s proximity to New York, its relationship with Amazon Inc. ($AMZN), and the role of unions in the ultimate break-up between New York City and Amazon (which happened a day later), we thought this story was particularly intriguing.

• Jurisdiction: D. of New Jersey (Judge Sherwood)

• Professionals:

  • Legal: Gibbons P.C. (Karen A. Giannelli, Mark B. Conlan, Brett S. Theisen) & (local) Wasserman, Jurista & Stolz, P.C. (Donald Clarke, Daniel Stolz)

  • Financial Advisor: Phoenix Management Services LLC (Vince Colistra)

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

New Chapter 11 Filing - Sarar USA Inc.

Sarar USA Inc. 

7/20/18

Sarar USA Inc., a New Jersey-based brick-and-mortar retailer of high-end men's apparel (read: custom-tailored suits) filed for bankruptcy. The company's products are manufactured by Sarar Turkey, a Turkey-based textile company that purportedly produces clothing for the likes of Hugo Boss and Ermenegildo Zegna. Sarar USA currently operates twelve locations; it, until recently, operated eighteen locations but recently closed six locations, including a store on Madison Avenue in New York City. The stores are "primarily in 'Class A' malls (prime locations)." 

The company filed for bankruptcy because "its retail sales have not been sufficient to cover its costs, which consist primarily of rent, labor and costs of products." And why is that? Well,

While the Debtor has created a unique high-end customer experience that is valued by its customers, unpredictable industry-wide market challenges in brick-and-mortar retail locations (notably, declining traffic in traditional shopping malls and the inability/lack of willingness by landlords to adjust rents to these operating realities) have led to extremely high operating costs and depressed profits in recent years.

At least they didn't note "the Amazon Effect." Whew. 

The company's equityholders were, for some time, propping the company up with liquidity infusions but apparently concluded that they were just flushing money down the toilet. Attempts to negotiate rent concessions from landlords proved futile. The company, therefore, is in Chapter 11 to review its store footprint, close underperforming stores under cover of the Bankruptcy Code, and take a second bite of its landlords to see if they'll be able to squeeze any postpetition rent forgiveness. If the company truly is in Class A malls, well...color us skeptical. 

The company, however, seems optimistic. It boasts: 

The Debtor’s products are priced from $50-$1,500, with an average retail price (after applicable discounts) of $320. Since its founding, the Debtor has been on a purposeful mission to create high-end tailored suits for the American and Canadian market. The Debtor’s suits are known throughout the world as one of the finest brands available to discriminating consumers. The Debtor offers suits that are both in-style and customer-fitted. Store locations are stocked with an average of 4,500 unique products, across a range of colors to fit any body type. The Debtor has become a leading fashion brand in the United States.

Which would explain why none of us here at PETITION have never heard of it. We've guessing nobody in the restructuring community has either, quite frankly. At least judging by the suits we've seen y'all rocking in court, anyway. 

The company also has an e-commerce platform that "currently accounts for approximately 2% of the Debtor's revenues." Expanding that platform is just one part of many in a robust strategic plan the company hopes to initiate in bankruptcy to be viable go-forward. Godspeed. 

• Jurisdiction: D. of New Jersey (Judge Sherwood)
• Capital Structure: No secured debt.      
• Company Professionals:
  • Legal: Perkins Coie LLP (Schuyler Carroll, Jeffrey Vanacore)
  • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)

Updated 7/20/18, 6:44 pm CT

New Chapter 11 Bankruptcy - B. Lane Inc. (d/b/a Fashion to Figure)

Fashion to Figure (@FTFSnaps)

• 11/13/17 Recap: Another retailer finds its way to bankruptcy. Here, the New York-based plus-size women's specialty retailer with 26-mall-and-outlet-center-based locations has filed for bankruptcy in New Jersey. The company appears to be suffocating under the weight of its brick and mortar locations but purports to have successful e-commerce and wholesale channels. It intends to pursue a sale of all of its assets "to be consummated as soon as possible given the upcoming critical holiday shopping season commencing on 'Black Friday'...." Wait, huh? The company is filing NOW to get out AHEAD of Black Friday? No wonder this company is bankrupt. Of course, the company is also considering vacating locations and "expeditiously conducting going out of business" sales. To this end, the company has filed a bid procedures motion with a joint venture of liquidators, SB Capital Group LLC and 360 Merchant Solutions LLC, lined up as stalking horse bidder for the assets; it also intends to continue to pursue a sale to "one of the largest department store chains in the United States," which apparently expressed some interest pre-petition. Meanwhile, no background on a bankrupt retailer is complete without some private equity shop getting thrown under the bus. Here, the company states (without overtly identifying the PE fund for whatever reason), "In 2012, prompted by a [$15mm] private equity investment, the Company embarked on a rapid expansion of the business. The expansion, however, proved ill-fated and ill-timed, coming at a time when traditional brick and mortar retail was on the decline. Specifically, the Company over-expanded into the shopping mall retail space at a time when market trends were shifting away from traditional brick and mortar stores and towards online retail." Ah, private equity. Speaking of private equity, a fund affiliated with Perella Weinberg Partners is listed as the primary equityholder with a 20.5% position. Curious. Otherwise, it looks like a slate of "friends and family" type investors got burned here. Speaking of getting burned, the list of top creditors reflects a who's who of landlords that the distressed world has become accustomed to seeing at the top of the "Top 30 Creditors" list: Washington Prime Group Inc. ($WPG)(listed once), Westfield Corp. ($WFD)(twice), Simon Property Group Inc. ($SPG)(six times), and Macerich Co. ($MAC)(listed twice). Nothing to see here.
• Jurisdiction: D. of New Jersey (Judge Sherwood)
• Capital Structure: $1.0mm secured debt (ACM Capital Fund I LP), $250k (Cowen Overseas Investment LP)
• Company Professionals:
  • Legal: Lowenstein Sandler LLP (Kenneth Rosen, Bruce Buechler, Philip Gross, Keara Waldron, Michael Papandrea)
  • Prepetition Investment Banker: Cowen and Company LLC
  • Claims Agent: Prime Clerk LLC (*click on the company name above for free docket access)
  • Other Parties in Interest:
    • ACM Capital Partners LLC
      • Legal: Shraiberg Landua & Page (Bradley Shraiberg)
    • Official Committee of Unsecured Creditors
      • Legal: Hahn & Hessen LLP (Mark Powers, Alison Ladd) & (local) Fox Rothschild LLP (Richard Meth, Paul Labov)
      • Financial Advisor: EisnerAmpner LLP (Edward Phillips)

Updated 5/5/18