New Chapter 11 Filing - The Rockport Company LLC

in

The Rockport Company LLC

5/14/18

The Rockport Company LLC, a Massachusetts-based designer, distributor and retailer of comfort footwear has filed for bankruptcy — the latest in a string of footwear retailers that has found its way into chapter 11. Payless Shoesource, Sheikh Shoes, and Nine West Holdings are other recent filings. The current owners of the business — its prepetition lenders — purchased the business from Berkshire Partners LLC and New Balance Holding Inc. in 2017. 

The company operates in what it dubs a “highly competitive” business where “[a]t various times of the year, department store chains, specialty shops, and online retailers offer brand-name merchandise at substantial markdowns which further intensifies the competitive nature of the industry.” The company has (i) a robust wholesale business (57% of all its global sales), (ii) a direct retail business (eight (8) full-price and nineteen (19) outlet stores in the United States and fourteen (14) full-price and nineteen (19) outlet stores in Canada), (iii) e-commerce, and (iv) an international distribution segment. 

This business has suffered from (a) operational challenges (a costly and time consuming separation from the Adidas Networks, with which the company's operations were deeply integrated until late 2017), (b) other negative externalities (i.e., the closure of three supply factories, contract disputes with warehousemen, and (c) the burdens of its brick-and-mortar footprint. The company notes, "[o]ver the last several years the Debtors have faced a highly promotional and competitive retail environment, underscored by a shift in customer preference for online shopping." And it notes further, "[t]he unfavorable performance of the Acquired Stores in the current retail environment has made it difficult for the Debtors to maintain sufficient liquidity and to operate their business outside of Chapter 11."

In light of this, armed with a $20 million new-money DIP credit facility (exclusive of rollup amounts) extended by its prepetition ABL lenders, the company has filed for bankruptcy to consummate a stalking horse-backed asset purchase agreement with CB Marathon Opco, LLC an affiliate of Charlesbank Equity Fund IX, Limited Partnership for the sale of the company's assets - OTHER THAN its North American assets — for, among other things, $150 million in cash. The buyer has a 25-day option to continue considering whether to purchase the North American assets but the company does "not expect there to be any significant interest in the North American Retail Assets." Read: the stores. The company, therefore, also filed a "store closing motion" so that it can expeditiously move to shutter its brick-and-mortar footprint at the expiration of the option. Ah, retail. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $57mm prepetition ABL Facility (Citizens Business Capital), $188.3 million '22 prepetition senior secured notes, $11mm prepetition subordinated notes.  
  • Company Professionals:
    • Legal: Richards Layton & Finger PA (Mark Collins, Michael J. Merchant, Amanda R. Steele, Brendan J. Schlauch, Megan E. Kenney)
    • Financial Advisor: Alvarez & Marsal Private Equity Services Operations Group, LLC (Paul Kosturos)
    • Investment Banker: Houlihan Lokey Inc.
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Prepetition Noteholders and DIP Note Purchasers
      • Legal: Debevoise & Plimpton LLP (My Chi To, Daniel Stroik) & (local) Pachulski Stang Ziehl & Jones LLP (Bradford Sandler, James O'Neill)
    • Collateral Agent and DIP Note Agent
      • Legal: Holland & Knight LLP (Joshua Spencer) & (local) Pachulski Stang Ziehl & Jones LLP (Bradford Sandler, James O'Neill)
    • ABL Administrative Agent and ABL DIP Agent: Citizens Business Capital
      • Legal: Riemer Braunstein LLP (Donald Rothman, Lon Singer, Jaime Rachel Koff, Jeremy Levesque) & (local) Ashby & Geddes PA (Gregory Taylor)
    • Stalking Horse Bidder: CB Marathon Opco, LLC an affiliate of Charlesbank Equity Fund IX, Limited Partnership
      • Legal: Goodwin Proctor LLP (Jon Herzog, Joseph Bernardi Jr.) & (local) Pepper Hamilton LLP (David Fournier, Evelyn Meltzer)

Updated 5/14/18 at 10:14 am

New Chapter 11 Filing - Claire's Stores Inc.

in

Claire's Stores Inc. 

3/19/18

Claire’s® Stores Inc. is the latest in a string of specialty "treasure hunt"-styled retailers to find its way into bankruptcy court. In this case, the debtors, together with their 33 non-debtor affiliates, sell jewelry, accessories, and beauty products to young women/teen/tweens/kids; it has a presence in 45 nations spread throughout 7,500 company-owned stores, concession stands, and franchises. The company proudly states that "[a] Claire's store is located in approximately 99% of major shopping malls through the United States." Moreover, "[e]ach of the Debtors' store locations are leased, and are typically located in traditional shopping malls with, on average, 1,000 square foot of selling space." PETITION NOTE: this explains a lot. Hashtag, retail apocalypse.

First Day Declarations are interesting in that they are the first opportunity for a debtor-company to tell its story to the public, to parties in interest, and, significantly, to the bankruptcy judge. And this declaration is particularly interesting because, unlike many of its bankrupt specialty retail predecessors, Claire’s® makes a concerted effort to delineate why its physical presence is so critical. So what is that critical piece? Apparently, it is ear piercing. Yup, you read that right. Ok, well that and the "treasure hunt" shopping atmosphere which "simply cannot be replicated online." The company boasts about solid operating margins. and notes that, at the time of filing, it only intends to shed 95 leases. 

The company notes that it has established trust with parents and the number of pierced ears is indicative of that; it estimates that it has pierced over 100 million ears worldwide (since 1978) and 3.5 million in fiscal year 2017. While that is gimmicky and cute, the company doesn't not note how much of the reported $212 million of EBITDA (on $1.3 billion of revenue) is related to this phenomenon. Moreover, all of the trust in the world cannot overcome a capital structure with $1.9 billion of funded debt (ex-$245 million more at the non-debtor affiliate level) and $162 million in cash interest expense (see chart below) - especially when $1.4 billion of that funded debt matures in Q1 '19. And particularly when fewer and fewer people tend to frequent the malls that Claire’s® dominate. Notably, the company says ONLY the following about e-commerce: "Finally, the Claire's Group operates a digital sales platform through which new and existing customers can purchase products directly through the Claire’s® and Icing® websites and mobile application." So, as the malls go, Claire’s® goes. Notably, the company makes a point that it "is growing, not shrinking, its business. The Company expects its concessions business to grow by more than 4,000 stores in 2018." Landlords take note: the company highlights its CONCESSIONS BUSINESS, which is essentially a "mini-footpring" utilizing the store-within-a-store model. In other words, this growth won't help the landlords much. 

In addition to its debt, the company notes - as a primary cause for its bankruptcy filing - that the "Debtors operate in a highly competitive market." PETITION NOTE: No effing sh*t. Mall traffic has declined 8% year-over-year and the debtors - ear-piercing demand notwithstanding - aren't impervious to this. Accordingly, revenue is down $200mm since 2014. 

To counteract these trends, the company engaged in exchange transactions back in 2016 that had the effect of stripping out intellectual property collateral, swapping out debt, and deleveraging the company by $400 million. Clearly that was a band-aid rather than a solution. 

Now the company purports to have a restructuring support agreement with the Ad Hoc First Lien Group which, in addition to 72% of the first lien debt, holds 8% of the second lien notes and 83% of the unsecured notes. The members of the Ad Hoc Group of First Lien Creditors have agreed to provide the Company with approximately $575 million of new capital, including financing commitments for a new $75 million asset-based lending facility, a new $250 million first lien term loan, and $250 million as a preferred equity investment. In addition, the company has lined up a Citibank-provided DIP credit facility of $75 million ABL (supported, seemingly, by the consenting ad hoc first lien group) and a $60 million "last out" term loan. Consequently, Claire's expects to complete the chapter 11 process in September 2018, emerge with over $150 million of liquidity, and reduce its overall indebtedness by approximately $1.9 billion. We'll believe it when we see it. 

  • Jurisdiction: D. of Delaware (Judge Walrath)
  • Capital Structure: see below. 
  • Company Professionals:
    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Matthew Barr, Ryan Dahl) & (local) Richards Layton & Finger PA (Daniel DeFranceschi, Zachary Shapiro, Brendan Schlauch, Brett Haywood)
    • Financial Advisor: FTI Consulting Inc.
    • Investment Banker: Lazard Freres & Co. LLC 
    • Real Estate Advisor: Hilco Real Estate LLC 
    • Independent Director: Michael D'Appolonia 
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • PE Sponsor: Apollo Investment Fund VI, L.P. (owns 97.7% of Claire's Inc, the parent)
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Jeffrey Saferstein)
    • DIP Agent: Citibank
      • Legal: Latham & Watkins LLP
    • Prepetition ABL Facility & Revolving Credit Facility Agent: Credit Suisse AG, Cayman Islands Branch
    • Ad Hoc First Lien Group (Initial Consenting Creditors: Diameter Capital Partners LP, Elliott Management Corporation, Monarch Alternative Capital LP, The Cincinnati High Yield Desk of J.P. Morgan Investment Management Inc., The Indianapolis High Yield Desk of J.P. Morgan Investment Management Inc., and Venor Capital Management LP.)
      • Legal: Willkie Farr & Gallagher LLP (Matthew Feldman, Brian Lennon, Daniel Forman) & (local) Morris Nichols Arsht & Tunnell LLP
      • Financial Advisor: Millstein & Co. 
    • First Lien Note Agent: The Bank of New York Mellon Trust Company N.A.
    • First Lien Term Loan Agent: Wilmington Trust NA
      • Legal: Pryor Cashman LLP (Seth Lieberman, Patrick Sibley, Matthew Silverman)
    • Second Lien Note Agent: Bank of New York 
    • Unsecured Note Indenture Trustee: Bank of New York 
    • Official Committee of Unsecured Creditors
      • Legal: Cooley LLP (Cathy Hershcopf, Seth Van Aalten, Summer McKee) & (local) Bayard PA (Justin Alberto, Erin Fay, Gregory Flasser)
      • Financial Advisor: Province Inc. 
Source: First Day Declaration

Source: First Day Declaration

Updated 3/30/18

New Chapter 11 Bankruptcy - The Walking Company Holdings Inc.

in ,

The Walking Company Holdings Inc.

3/8/18 Recap: Another retailer - this time a repeat offender - will be walking into bankruptcy court (see what we did there?). Here, the California-based once-publicly-traded ($WALK) manufacturer of footwear like Birkenstock and ASICS has filed for bankruptcy with a plan on file and an equity sponsor in tow to the tune of $10mm. 

This is a story of staggered disruption. In the first instance, the company expanded via acquisition and grew from 2005-2008 to over 200 stores. To fund the expansion, the company issued $18.5mm of convertible notes and transferred the proceeds of the liquidation of its Big Dog entity to The Walking Company, the use of proceeds including the buildout of omni-channel distribution and vertical integration. But,

As a result of many factors including- among them, challenging negotiations with landlords which did not provide the Debtors with the rent relief they believe they needed, and the state of the national economy, by late 2008 TWC found that nearly 100 of the newer stores it opened during this expansion period were not generating the sales and profits expected.

Moreover, 

...by 2008, Big Dogs' business had collapsed more rapidly than the Debtors had anticipated. Big Dogs was in the business of selling moderately priced, casual apparel through a chain of specialty retail stores (Big Dogs stores) located around the country. The rapid growth of big-box, mass-market retailers during this period put great pricing pressure on retailers of moderately priced, casual apparel, putting many of them out of business.

Walmart ($WMT). Target ($TGT). Just say it broheims. Never understand the reluctance in these filings. Anyway, the upshot of all of this? Once the Great Recession hit, mall traffic fell off a cliff, revenue declines accelerated, landlords proved obstinate, and the company filed for bankruptcy in December 2009. 

In bankruptcy, the company reached accommodations with certain landlords and received a $10mm capital infusion from Kayne Anderson Capital Advisors LP. 

Subsequent to the bankruptcy, the company apparently thrived from 2013 through 2017. It had a better rent structure, it ceased expansion, and it focused on successful brands (e.g., ABEO) and the wholesaling and international licensing thereof. But then the realities of e-commerce struck. Per the company,

During this period, however, the increasing power of Internet retailers made traditional business of retail stores selling products manufactured by others increasingly difficult, and it also had an increasingly negative impact on customer traffic in shopping malls. 

Indeed, Deckers Outdoor Corporation ($DECK)(the manufacturer of UGG footwear) terminated its relationship with the company. The company couldn't replace those lost sales fast enough - through third party or private label sales - and the dominos started to fall. The company sought rent concessions and landlords, for the most part, told it to pound sand. Holiday sales declined. Appraisers reduced the valuation of inventory and, in turn, the company had diminished access to its bank credit line. Cue the Scarlet 22.

The company intends to use the bankruptcy to obtain "substantial rent relief by conforming their lease portfolio to market rents." Notably, two of the initial 5 leases that the company seeks to reject in the first instance are Simon Property Group locations in Dallas and Oklahoma City and one Taubman location. Other creditors appear to be your standard retail slate: Chinese manufacturers, trade vendors (ECCO, Rockport) and other landlords (General Growth Properties is a prominent one with locations listed as 9 of the top 30 creditors). 

The company otherwise has agreement with its large shareholders (including another $10mm equity infusion) and Wells Fargo to provide DIP and exit credit. 

  • Jurisdiction: D. of Delaware 
  • Capital Structure: $40.3mm RCF & $7.25mm TL (Wells Fargo Bank NA), $11.74mm 8.375% '19 convertible notes    
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey N Pomerantz, Jeffrey W Dulberg, Victoria A Newmark, James E ONeill) 
    • Financial Advisor: Consensus Advisors LLC
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP Agent, DIP Term Agent, Prepetition Senior Agent: Wells Fargo Bank NA
      • Legal: Choate Hall & Stewart LLP (Kevin Simard) & (local) Womble Bond Dickinston (Matthew Ward)
    • Prepetition Subordinated Noteholders (Simon Property Group, Galleria Mall Investors LP)
      • Legal: Irell & Manella LLP (Jeffrey Reisner)

New Chapter 11 Filing - Tops Holding II Corporation

in

Tops Holding II Corporation

  • 2/21/18 Recap: When a company's "Overview" in its First Day Declaration basically leads with union metrics (12,300 unionized employees of 14,000 total employees) and collective bargaining agreement numbers (12 of them), you know there's gonna be a war with employees. The fact that the footprint is 169 stores-wide in three states almost seems like a footnote. As does the fact that the business started in the 1920s and seemingly thrived through 2007 when, naturally, private equity got involved and went on a debt-ridden acquisition spree. But hang on: we're getting ahead of our skis here. So, what happened here? Well, clearly, the company has to negotiate with its unions; it also seeks to deleverage its ballooning balance sheet and take care of some leases and supply agreements. The company has secured $265mm in DIP financing to fund the cases; it says that it "intend[s] to remain in chapter 11 for approximately six (6) months." We'll believe it when we see it. Anyway, WHY does it need to take all of these steps? Well, as we stated before: private equity, of course. "Despite the significant headwinds facing the grocery industry, over the past five years, the Company has experienced solid financial performance and has sustained stable market share. The vast majority of the Company’s supermarkets generate positive EBITDA and the Company generates strong operating cash flows. Transactions undertaken by previous private equity ownership, however, saddled the Company with an unsustainable amount of debt on its balance sheet. Specifically, the Company currently has approximately $715 million of prepetition funded indebtedness...." Ah, private equity = a better villain than even Amazon (though Amazon gets saddled with blame here too, for the record). But wait: don't forget about the pensions! "[T]he Company has been embroiled in a protracted and costly arbitration with the Teamsters Pension Fund concerning a withdrawal liability of in excess of $180 million allegedly arising from the Company’s acquisition of Debtor Erie Logistics LLC" from its biggest food supplier, C&S Wholesale Grocers Inc., the 10th largest private company in the US. Moreover, the company has been making monthly pension payments; nevertheless, the pension is underfunded by approximately $393mm. The company continues, "Utilizing the tools available to it under the Bankruptcy Code, the Company will endeavor to resolve all issues relating to the Teamsters Arbitration and address its pension obligations, and the Company will take reasonable steps to do so on a consensual basis." Oy. What a hot mess. We can't even read that without ominous music seemingly popping up out of nowhere. More to come.

  • Jurisdiction: S.D. of New York

  • Capital Structure: $112mm RCF (inclusive of a $10mm FILO and $34mm LCs, Bank of America NA), $560mm 8% '22 senior secured notes, $67.5mm 9% '21 opco unsecured notes, $8.6mm 8.75%/9.5% '18 holdco unsecured notes

  • Company Professionals:

    • Legal: Weil Gotshal & Manges LLP (Ray Schrock, Stephen Karotkin, Sunny Singh)

    • Financial Advisor/CRO: FTI Consulting Inc. (Michael Buenzow, Armen Emrikian, Paul Griffith, Ronnie Bedway, Andy Kopfensteiner)

    • Investment Banker: Evercore (David Ying, Stephen Goldstein, Jeremy Matican, Elliot Ross, Jonathan Kartus, Andrew Kilbourne)

    • Real Estate Advisor: Hilco Real Estate LLC

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

  • Other Parties in Interest:

    • Prepetition ABL Agent & DIP ABL Agent: Bank of America NA

      • Legal Counsel: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Amelia Joiner, Matthew Ziegler)

    • Indenture Trustee for Senior Notes due 2018, notes due 2021 and Senior Secured Notes: U.S. Bank NA

      • Legal: Thompson Hine LLP (Irving Apar, Elizabeth Frayer, Derek Wright)

    • Ad Hoc Noteholder Group & DIP TL Lenders (Column Park Asset Management LP, Fidelity Management & Research Company, HG Vora Capital Management LLC, Signature Global Asset Management, Silver Point Capital LP)

      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Alan Kornberg, Diane Meyers, Lauren Shumejda)

      • Financial Advisor: Lazard Freres & Co. LLC

    • DIP TL Agent: Cortland Capital Markets Services LLC

      • Legal: Arnold & Porter Kaye Scholer LLP (Tyler Nurnberg, Alan Glantz)

    • Southpaw Asset Management LP

      • Legal: Cooley LLP (Jeffrey Cohen, Steven Siesser, Sheila Sadighi, Andrew Behlmann)

    • Official Committee of Unsecured Creditors (PepsiCo, Inc., Valassis Direct Mail, Inc., Osterweis Strategic Income Fund, U.S. Bank N.A., the UFCW Local One Pension Fund, the Teamsters Local 264, and Benderson Development Company, LLC)

      • Legal: Morrison & Foerster LLP (Brett Miller, Dennis Jenkins, Jonathan Levine, Erica Richards)

      • Financial Advisor: Zolfo Cooper LLC

New Chapter 11 Filing - The Bon-Ton Stores Inc.

in

The Bon-Ton Stores Inc.

  • 2/4/18 Recap: See here. 
  • Jurisdiction: D. of Delaware (Judge Walrath)
    • Capital Structure: $339mm Tranche A RCF (Bank of America), $150 Tranche A-1 Term Loan, $350mm second lien notes (Wells Fargo Bank NA)     
  • Company Professionals:
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Kelley Cornish, Elizabeth McColm, Claudia Tobler, Alexander Woolverton, Michael Colarossi, Diane Meyers, Moses Silverman) & Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Sean Greecher, Andrew Magaziner, Elizabeth Justison)
    • Financial Advisor: AlixPartners LLC (Holly Etlin, Carrianne Basler, Jim Guglielmo, John Creighton, Ben Chesters, Jamie Strohl, Mitch Chubinsky, Thomas Cole, Daniel Law) 
    • Investment Banker: PJT Partners LP (Steven Zelin, James Baird, Jon Walter, Vinit Kothary, Sartag Aujla)
    • Real Estate Advisor: A&G Realty Partners LLC
    • Intellectual Property Disposition Consultant: Hilco IP Services (David Peress)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Robert A.J. Barry, Amelia Joiner) & Richards Layton & Finger PA (Mark Collins, Joseph Barsalona)
    • Second Lien Noteholders: Alden Global, LLC; B. Riley FBR, Inc.; Bennett Management Corporation; Brigade Capital Management, LP; Riva Ridge Master Fund, Ltd.; Cetus Capital LLC; Contrarian Capital Management LLC; and Wolverine Asset Management, LLC
      • Legal: Jones Day (Bruce Bennett, Joshua Mester, Sidney Levinson, Genna Ghaul, Charles Whittman-Todd) & (local) Cole Schotz PC (Norman Pernick, J. Kate Stickles)
    • Official Committee of Unsecured Creditors
      • Legal: Pachulski Stang Ziehl & Jones LLP (Jeffrey Pomerantz, Robert Feinstein, Bradford Sandler)
      • Financial Advisor: Zolfo Cooper LLC (David MacGreevey)
    • Prospective Buyer: DW Partners LP
      • Legal: DLA Piper LLP (Stuart Brown, R. Craig Martin, Jason Angelo, Richard Chesley, John Lyons, Oksana Rosaluk)

Updated 4/10/18

New Chapter 11 Filing - KIKO USA Inc.

in

KIKO USA Inc.

  • 1/11/18 Recap: Cosmetics retailer files for bankruptcy and simultaneously busts the narrative that cosmetics are safe in the age of Amazon, Sephora and Ulta Beauty - not to mention a long list of direct-to-consumer e-commerce players. Or does it? Here, the cosmetics retailer with retail stores, an e-commerce channel, and an Amazon.com presence filed for bankruptcy because “its retail sales have not been sufficient to cover its costs, which consist primarily of rent and labor.” In other words, you might as well stop reading because you’ve read this story dozens of times in the last 12 months. Of 29 domestic locations (26 in malls), the company intends to close 24 stores in bankruptcy after failing to negotiate concessions from landlords prior to the filing. It doesn’t own any of its locations (a recurring problem). Remaining locations will be those in big cities: New York, Miami, Las Vegas, Sunrise Florida, and Los Angeles. Tiger Capital Group has been hired to dispose of assets. The go-forward plan is also, frankly, fairly unoriginal. It includes re-focusing on product assortment and targeted in-demand product, (ii) realigning distribution via a focus on the five remaining locations and, seemingly, kiosks (or the like) within third-party retailers, (iii) enhancing the customer experience with better staff/training, (iv) organizational changes, (v) targeting marketing (cha ching, Facebook!), and growing the commerce and Amazon Prime offering (cha ching Amazon). In summary, KIKO S.p.A., the corporate overlord loses its equity but for its DIP loan and Facebook and Amazon benefit. What else is new?
  • Jurisdiction: D. of Delaware (Judge Walrath)    
  • Company Professionals:
    • Legal: Perkins Coie LLP (John Kaplan, Jeffrey Vanacore, Deborah Kennedy) & (local) Saul Ewing Arnstein & Lehr (Mark Minuti, Monique Bair DiSabatino, Sharon Levine)
    • Financial Advisor: Getzler Henrich & Associates LLC (Mark Samson)
    • Claims Agent: BMC Group (*click on company name above for free docket access)
  • Other Parties in Interest:
    • KIKO S.p.A.
      • Legal: White & Case LLP (John Cunningham, Fan He, Robbie Boone Jr.) & (local) Fox Rothschild LLP (Jeffrey Schlerf, Carl Neff)

New Chapter 11 Bankruptcy - A'GACI LLC

in

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

Source: First Day Declaration

New Chapter 11 Bankruptcy - Charming Charlie Holdings Inc.

in

Charming Charlie Holdings Inc.

  • 12/11/17 Recap: A mere two weeks before Christmas, another retailer falls into bankruptcy, capping a 2017 retail bloodbath. Here, the Houston-based specialty retailer focused on colorful fashion jewelry, handbags, apparel, gifts, and beauty products follows a long line of retailers into bankruptcy court. In doing so, it demonstrates that the "treasure hunt" experienced often touted as a plus for discount retailers like T.J. Maxx ($TJX), doesn't always hold; it also shows that the difficulties apparent in women's specialty retail are demography-agnostic (here, the core audience is women ages 35-55 - in contrast to, say, rue21). The company blames (i) "adverse macro-trends" and (ii) operational shortfalls, e.g., merchandising miscalculations, lack of inventory, an overly broad vendor base), for its underperformance and reduced sales. EBITDA declined 75% "in the last several fiscal years." 75-effing-percent! With a limited amount of money available under its revolving credit facility and even less cash on hand, "Charming Charlie is out of cash to responsibly operate its business." Ouch. Rough timing. Only subject to a restructuring would lenders support the company; accordingly, the company has entered into a restructuring support agreement with 80% of the term lenders which includes a $20mm new-money cash infusion via a DIP credit facility (the facility includes, in total, a $35mm ABL and a $60mm TL...so yes, a proposed roll-up of $75mm of prepetition debt into a DIP). The company has also commenced the closure of 100 of its 370 stores, a meaningful reduction in its brick-and-mortar footprint (PETITION NOTE: the usual array of landlords, i.e., General Growth Properties ($GGP), have made a notice of appearance). Note the carefully crafted language the company deploys in its initial filing, "The Debtors anticipate 276 go-forward locations following the first round of store closures." Key words, "FIRST ROUND." In other words, the ~100 stores the company notes that it is closing (and that it seeks to retain Hilco for) may just be the beginning. While the company leaves the door open for a sale, the current agreement contemplates the equitization of the term loan (with added equity weight to those providing DIP financing) and a post-emergence debt load of $85mm. 
  • Some other takeaways:
    • (1) the fashion industry has suffered a 15% downturn in fashion jewelry sales (and the company experienced a disproportionate 22% decline itself),
    • (2) vendors and factorers continue to be aggressive with constrictive trade terms and protect their turf (similar here to Toys R Us),
    • (3) Kirkland & Ellis LLP appears to effectively deploy its network to populate Boards of Directors (here, one of the independents appointed to the Board in July 2017 has ties to Gymboree and Toys R Us, two Kirkland clients),
    • (4) Guggenheim's efforts to sell this hot mess were unsuccessful pre-petition (query whether they'll have better luck post-petition...we doubt it),
    • (5) recall the words "first round" when you consider that even landlords for locations that remain open will be squeezed as the company seeks "to amend lease terms to reduce occupancy costs and obtain rent abatements for the first quarter of 2018," 
    • (6) this restructuring will lead to some supply chain pain as the company streamlines the vendor base down to 80 from 175, and
    • (7) its hard out there for a pimp (in this case: Charlie Chanaratsopon "vacated" his role as CEO and an interim CEO has taken the helm). 
  • Jurisdiction: D. of Delaware (Judge Sontchi)
  • Capital Structure: $22mm '20 ABL (Bank of America NA), $132mm '19 TL (Wilmington Savings Trust)  
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Joshua Sussberg, Christopher Greco, Aparna Yemamandra, Rebecca Blake Chaikin, Michael Esser, Anna Rotman) & (local) Klehr Harrison Harvey Branzburg LLP (Dominic Pacitti, Michael Yurkewicz, Morton Branzburg)
    • Financial Advisor: AlixPartners LLC
    • Investment Banker: Guggenheim Securities LLC (Stuart Erickson)
    • Liquidation Agent: HIlco Merchant Resources LLC (Ian Fredericks)
    • Real Estate Advisor: A&G Realty Partners LLC
    • Claims Agent: Rust Consulting/Omni Bankruptcy (*click on company name above for free docket access)
  • Other Parties in Interest:
    • DIP ABL Agent/Prepetition ABL Agent: Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Robert Barry, Julia Frost-Davies, Amelia Joiner) & (local) Richards Layton & Finger PC (Mark Collins, David Queroli)
    • Ad Hoc Group of Term Loan Lenders
      • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Jeffrey Saferstein, Adam Denhoff, Sharad Thaper) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, M. Blake Cleary, Shane Reil)

12/13/17

New Chapter 11 Bankruptcy - Shiekh Shoes LLC

in

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

in

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

New Chapter 11 Bankruptcy - Vitamin World Inc.

in

Vitamin World Inc.  

  • 9/11/17 Recap: As previously foreshadowed, the Holbrook NY-based specialty retailer in the vitamins, minerals, herbs, and supplements market with 334 mall and outlet center retail locations filed for bankruptcy to disentangle itself from legacy operational ties to prior owner NBTY Inc. and terminate various leases (52 identified so far; 45 locations have already been shuttered). Some of the locations are within malls owned by REITS, Simon Property Group, General Growth Properties, and Vornado Realty Trust. The company blames the bankruptcy filing on liquidity constraints caused by supply chain and ingredient availability issues, the struggling retail market, above market rents, and underperforming retail stores. Prepetition lender, Wells Fargo Bank NA, is providing credit during the bankruptcy cases. 
  • Jurisdiction: D. of Delaware 
  • Capital Structure: $14.4mm debt (Wells Fargo Bank NA), $9.5mm "Seller Note" (RE Holdings)
  • Company Professionals:
    • Legal: Katten Muchin Rosenman LLP (Paige Barr, Peter Siddiqui, Allison Thompson) & (local) Saul Ewing LLP (Monique DiSabatino, Mark Minuti)
    • Financial Advisor: RAS Management Advisors LLC
    • Real Estate Advisor: RCS Real Estate Advisors
    • Claims Agent: JND Corporate Restructuring (*click on company name above for free docket access)
  • Other Parties in Interest:
  • DIP Lender: Wells Fargo Bank NA
    • Legal: Riemer Braunstein LLP (Donald Rothman) & (local) Ashby & Geddes PA (Gregory Taylor) 
  • Official Committee of Unsecured Creditors (incl. Simon Property Group, General Growth Properties):
    • Legal: Lowenstein Sandler LLP (Jeffrey Cohen, Bruce Buechler, Mary Seymour) & (local) Whiteford Taylor & Preston LLC (Christopher Samis, L. Katherine Good, Kevin Shaw)
    • Financial Advisor: Berkeley Research Group LLC

Updated 9/24/17