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 - 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.

Screen Shot 2018-11-16 at 1.35.41 PM.png
Source: First Day Declaration.

Source: First Day Declaration.

🛌New Chapter 11 Bankruptcy Filing - Mattress Firm Inc.🛌

Mattress Firm Inc.

10/05/18

Recap: See our recap here.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: See below.

  • Company Professionals:

    • Legal: Sidley Austin LLP (Bojan Guzina, Michael Fishel, Gabriel MacConaill, Matthew Linder, Blair Warner) & (local) Young Conaway Stargatt & Taylor LLP (Edmon Morton)

    • Financial Advisor: AlixPartners LLP

    • Investment Banker: Guggenheim Securities LLC (Durc Savini)

    • Liquidator: Gordon Brothers Group LLC

      • Legal: Katten Muchin Rosenman LLP (Steven Reisman, Cindi Giglio) & (local) Saul Ewing Arnstein & Lehr LLP (Mark Minuti, Lucian Murley)

    • Real Estate Advisors: A&G Realty Partners

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

  • Other Parties in Interest:

    • Barclays Bank PLC

      • Legal: Paul Hastings LLP (Andrew Tenzer, Michael Comerford) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

    • Citizens Bank NA

      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Marc Leduc, Laura McCarthy) & (local) Richards Layton & Finger PA (Mark Collins, Jason Madron)

    • Steinhoff International Holdings N.V

      • Legal: Linklaters LLP (Robert Trust, Christopher Hunker, Amy Edgy) & (local) Morris Nichols Arsht & Tunnell LLP (Derek Abbott, Andrew Remming, Joseph C. Barsalona II)

    • Exit term loan financing backstop group (the “Backstop Group”): Attestor Capital LLP, Baupost Group, Centerbridge Partners LP, DK Capital Management Partners, Farrallon Capital Management L.L.C., KKR & Co. Partners LLP, Monarch Alternative Capital LP, Och-Ziff Capital Management, Silverpoint Capital

      • Legal: Latham & Watkins LLP (Mitchell Seider, Adam Goldberg, Hugh Keenan Murtagh, Marc Zelina, Adam Kassner) & (local) Ashby & Geddes PA (William Bowden, Karen Skomorucha Owens, F. Troupe Mickler IV)

Screen Shot 2018-10-06 at 9.11.23 PM.png

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

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 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

Source: First Day Declaration

New Chapter 11 Bankruptcy - Charming Charlie Holdings Inc.

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 & CCAA - Toys "R" Us Inc.

Toys "R" Us Inc.

  • 9/19/17 Recap: So. Much. To. Unpack. Here. We've previously discussed the run-up to this massive chapter 11 bankruptcy filing here and here. Still, suffice it to say that, unlike many of the other retailers that have predictably filed for bankruptcy thus far in 2017, this one was different. This one seemingly came out of nowhere - particularly given the proximity to the holiday shopping season. Before we note what this case is, lets briefly cover what it isn't and clear the noise that is pervasive on the likes of Twitter: this is NOT "RIP" Toys "R" Us. We don't get overly sentimental usually but the papers filed with the bankruptcy court were well-written and touching: this is a store, a brand, that means a lot to a lot of people. And it's not going anywhere (the company will have its challenges to assure people that this is the case). This is a financial restructuring not a liquidation: the company simply hasn't been able to evolve while paying $400mm in annual interest expense on over $5b of private equity infused debt. Plain and simple. Yes, there are other challenges (blah blah blah, Amazon), but with that debt overhang, it appears the company hasn't been able to confront them (PETITION side note: an ill-conceived deal with Amazon 18 years ago is mind-blowing when viewed from the perspective of Amazon's long game). With this filing, the company is signaling that the time for short term band-aids to address its capital structure is over. Now, "[t]he time for change, and reinvestment in operations, has come." Decisive. Management isn't messing around anymore. With a reduction in debt, the company will be unshackled and able to focus on "general upkeep and the condition of...stores, [its] inability to provide expedited shipping options, and [its] lack of a subscription-based delivery service." Indeed, the company intends to use a $3.1b debtor-in-possession credit facility to begin investing in modernization immediately.
  • Interesting Facts:
    • Toy Manufacturers: Mattel ($MAT)(approx $136mm), Hasbro ($HAB) (approx $59mm) & Lego (approx $31.5mm) are among the top general unsecured creditors of the company. Mattel and Hasbro's stock traded down quite a bit yesterday on the rampant news of this filing. Query whether any of the $325mm of requested critical vendor money will apply to these companies.
    • The Power of the Media (read: NOT "fake news"): This CNBC piece helped push the company into bankruptcy. Bankruptcy professionals were retained in July (or earlier in the case of Lazard) to pursue capital structure solutions. In August the company engaged with some of its lenders. But then "...a news story published on September 6, 2017, reporting that the Debtors were considering a chapter 11 filing, started a dangerous game of dominos: within a week of its publication, nearly 40 percent of the Company’s domestic and international product vendors refused to ship product without cash on delivery, cash in advance, or, in some cases, payment of all outstanding obligations. Further, many of the credit insurers and factoring parties that support critical Toys “R” Us vendors withdrew support. Given the Company’s historic average of 60-day trade terms, payment of cash on delivery would require the Debtors to immediately obtain a significant amount—over $1.0 billion—of new liquidity." 
    • Revenue. The company generates 40% of its annual revenue during the holiday season.
    • Footprint. The company has approximately 1,697 stores and 257 licensed stores in 38 countries, plus additional e-commerce sites in various countries. The company has been shedding burdensome above-market leases and combining its Babies and Toys shops under one roof; it intends to continue its review of its real estate portfolio. Read: there WILL be store closures.
    • Eff the Competition. Toys has some choice words for its competition embedded in its bankruptcy papers; it accuses Walmart ($WMT) and Target ($TGT)(the "big box retailers") of slashing prices on toys and using toys as a loss leader to get bodies in doors; it further notes that "retailers such as Amazon are not concerned with making a profit at this juncture, rendering their pricing model impossible to compete with..." ($AMZN). Yikes. 
    • Experiential Retail. The company intends to invest in the "shopping experience" which will include (i) interactive spaces with rooms to use for parties, (ii) live product demonstrations put on by trained employees, and (iii) the freedom for employees to remove product from boxes to let kids play with the latest toys. And...wait for it...AUGMENTED REALITY. Boom. Toysrus.ar and Toysrus.ai here we come. 
  • Jurisdiction: E.D. of Virginia (Judge Phillips)
  • Capital Structure: see below     
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (Jamie Sprayragen, Anup Sathy, Edward Sassower, Chad Husnick, Joshua Sussberg, Robert Britton, Emily Geier) & (local) Kutak Rock LLP (Michael A. Condyles, 
      Peter J. Barrett, Jeremy S. Williams) & (Canadian counsel) Goodmans LLP
    • Legal to the Independent Board of Directors: Munger, Tolles & Olson LLP
    • Financial Advisor: Alvarez & Marsal North America LLC (Jeffrey Stegenga, Jonathan Goulding, Tom Behnke, Cari Turner, Jim Grover, Arjun Lal, Doug Lewandowski, Bobby Hoernschemeyer, Scott Safron, Kara Harmon, Nick Cherry, Adam Fialkowski)
    • Investment Banker: Lazard Freres & Co., LLC (David Kurtz)
    • Real Estate Consultant: A&G Realty Partners LLC (Andrew Graiser)
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
    • Communications Consultant: Joele Frank Wilkinson Brimmer Katcher
  • Other Parties in Interest:
  • ABL/FILO DIP Admin Agent: JPMorgan Chase Bank NA
    • Legal: Davis Polk & Wardwell LLP (Marshall Heubner, Brian Resnick, Eli Vonnegut, Veerle Roovers) & (local) Hunton & Williams LLP (Tyler Brown, Henry (Toby) Long III, Justin Paget)
  • DIP Admin Agent (Toys DE Inc). NexBank SSB & Ad Hoc Group of B-4 Lenders (Angelo Gordon & Co LP; Franklin Mutual Advisors LLC, HPS Investment Partners LLC, Marathon Asset Management LP, Redwood Capital Management LLC, Roystone Capital Management LP, and Solus Alternative Asset Management LP)
    • Legal: Wachtell Lipton Rosen & Katz (Joshua Feltman, Emil Kleinhaus, Neil Chatani) & (local) McGuireWoods LLP (Dion Hayes, Sarah Bohm, Douglas Foley)
  • Ad Hoc Group of Taj Noteholders.
    • Legal: Paul Weiss Rifkind Wharton & Garrison LLP (Brian Hermann, Samuel Lovett, Kellie Cairns) & (local) Whiteford Taylor & Preston LLP (Christopher Jones, Jennifer Wuebker)
  • Steering Committee of B-2 and B-3 Lenders (American Money Management, Columbia Threadneedle Investments, Ellington Management Group LLC, First Trust Advisors L.P., MJX Asset Management LLC, Pacific Coast Bankers Bank, Par-Four Investment Management LLC, Sound Point Capital Management, Taconic Capital Advisors LP).
    • Legal: Arnold & Porter Kaye Scholer LLP (Michael Messersmith, D. Tyler Nurnberg, Sarah Gryll, Rosa Evergreen)
  • 12% ’21 Senior Secured Notes Indenture Trustee: Wilmington Trust, National Association.
    • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Gianfranco Finizio) & (local) ThompsonMcMullan PC (David Ruby, William Prince IV)
  • Bank of America NA
      • Legal: Skadden Arps Slate Meagher & Flom LLP (Paul Leake, Shana Elberg, George Howard) & (local) Troutman Sanders LLP (Jonathan Hauser)
    • Private Equity Sponsors: Bain Capital Private Equity LP, Kohlberg Kravis Roberts & Co. L.P. ($KKR), and Vornado Realty Trust ($VNO)
  • Large Creditor: Mattel Inc.
    • Legal: Jones Day (Richard Wynne, Erin Brady, Aaron Gober-Sims) & (local) Michael Wilson PLC (Michael Wilson)
  • Large Creditor: LEGO Systems Inc.
    • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Kelly DiBlasi) & (local) Walcott Rivers Gates (Cullen Speckhart)
  • Large Creditor: American Greetings Corporation.
    • Legal: Baker & Hosteler LLP (Benjamin Irwin, Eric Goodman)
  • Creditor: River Birch Capital
    • Legal: Andrews Kurth & Kenyon LLP (Paul Silverstein)
  • Creditor: Owl Creek Asset Management
    • Legal: Stroock Stroock & Lavan LLP (Samantha Martin)
  • TRU Trust 2016-TOYS, Commercial Mortgage Pass-Through Certificates, Series 2016-TOYS acting through Wells Fargo Bank NA
    • Legal: Dechert LLP (Allan Brilliant, Brian Greer, Stephen Wolpert, Humzah Soofi) & (local) Troutman Sanders LLP (Jonathan Hauser)
  • Trustee: Tru Taj DIP Notes (Wilmington Savings Fund Society FSB)
    • Legal: Porter Hedges LLP (Eric English) & (local) Spotts Fain PC (James Donaldson)
  • Committee of Unsecured Creditors (Mattel Inc., Evenflo Company Inc., Simon Property Group, Euler Hermes North America Insurance Co., Veritiv Operating Company, Huffy Corporation, KIMCO Realty, The Bank of New York Mellon, LEGO Systems Inc.)
First Day Declaration

First Day Declaration

First Day Declaration

First Day Declaration

Updated 10/5/17 11:40 am

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

First Day Declaration filed 8/26/17

New Chapter 11 Filing - The Gymboree Corporation

The Gymboree Corporation

  • 6/12/17 Recap: Yawn...another private equity owned retailer in bankruptcy. Why? Standard fare for everyone following the retail story at this point: a substantial brick-and-mortar presence (1300 stores) in need of rightsizing, higher expenses than web-based competitors, an underdeveloped wholesale operation, an underdeveloped web presence, insufficient "omnichannel" capabilities (the go-to buzzword for retailers these days), and more debt than competitors like Children's Place and the Gap. In other words, private equity, that's why (here, Bain Capital Private Equity LP). Notably, "[a]pproximately 35% of their domestic real estate space is concentrated with Simon Property Group, Inc. and GGP Inc. (previously General Growth Properties, Inc.)" ($SPG, $GGP) and, in the first instance, the company is seeking to close 450 stores. Hmmm. The Company will operate under a $105mm DIP term loan credit facility ($35mm new money) and a $273.5mm DIP revolving credit facility; it will also seek to avail itself of $80mm in new equity capital by way of a fully-backstopped rights offering. The upshot of all of this financial mumbo-jumbo is that the term lenders will own the majority of the company. 
  • Jurisdiction: E.D. of Virginia
  • Capital Structure: $81mm '17 ABL RCF (Bank of America NA), $47.5mm '17 ABL Term Loan (Pathlight Capital LLC), 788.8mm '18 TL (Credit Suisse), $171mm '18 unsecured notes (Deutsche Bank Trust Company Americas)    
  • Company Professionals:
    • Legal: Kirkland & Ellis LLP (James Sprayragen, Anup Sathy, Joshua Sussberg, Steven Serajeddini, Matthew Fagen, Laura Elizabeth Krucks, Timothy Bow, Gabor Balassa, Ben Tyson) & (local) Kutak Rock LLP (Michael Condyles, Peter Barrett, Jeremy Williams)
    • Legal (Special Committee): Munger Tolles & Olson LLP (Thomas Wolper, Seth Goldman, Kevin Allred)
    • Financial Advisor: AlixPartners LLC (James Mesterharm, Liyan Woo)
    • Investment Banker: Lazard Freres & Co. LLC (David Kurtz, Christian Tempke)
    • Real Estate Consultant: A&G Realty Partners LLC (Andrew Graiser)
    • Liquidators: Tiger Capital Group LLC and Great American Group LLC
    • Claims Agent: Prime Clerk LLC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Consenting Term Loan Lenders & DIP Term Loan Agent: Credit Suisse AG, Cayman Islands Branch
      • Legal: Milbank Tweed Hadley & McCloy LLP (Dennis Dunne, Evan Fleck) & (local) McGuireWoods LLP (Dion Hayes, Sarah Boehm, K. Elizabteh Sieg)
      • Financial Advisor: Rothschild & Co.
    • DIP ABL Administrative Agent
      • Legal: Morgan Lewis & Bockius LLP (Julia Frost-Davies, Robert A.J. Barry, Amelia Clark Joiner) & (local) Hunton & Williams LLP (Tyler Brown, Justin Paget)
    • DIP ABL Term Agent
      • Legal: Choate Hall & Stewart LLP (Kevin Simard, Jennifer Fenn) & (local) Whiteford Taylor Preston LLP (Christopher Jones)
    • Sponsor: Bain Capital Private Equity LP 
      • Legal: Weil Gotshal & Manges LLP (Matthew Barr, Robert Lemons) & (local) Wolcott Rivers Gates (Cullen Speckhart)
    • Ad Hoc Group of Senior Unsecured Noteholders
      • Legal: Akin Gump Strauss Hauer & Feld LLP (Daniel Golden, Jason Rubin)
    • Pathlight Capital
      • Legal: Choate Hall & Stewart LLP (Kevin Simard, Jonathan Marshall) & (local) Whiteford Taylor & Preston LLP (Christopher Jones)
    • Indenture Trustee: Deutsche Bank Trust Company Americas
      • Legal: Moses & Singer LLP (Alan Gamza, Kent Kolbig, Jessica Boneque) & (local) Hirschler Fleischer PC (Robert Westermann, Rachel Greenleaf)
    • Official Committee of Unsecured Creditors
      • Legal: Hahn & Hessen LLP (Mark Power, Mark Indelicato, Janine Figueiredo, Alison Ladd) & (local) Tavenner & Beran PC (Lynn Tavenner, Paula Beran, David Tabakin)

Updated 7/11/17 at 7:25 pm CT

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 - Michigan Sporting Goods Distributors Inc.

Michigan Sporting Goods Distributors, Inc.

  • 2/14/17 Recap: Happy Valentine's Day, honey, your favorite midwestern sporting goods store is going out of business and I picked up some sweet Nike kicks for you at (an alleged) 60% off. Great for you. Great for me. Not so great for the 1300 employees, Nike (who is owed $3.8mm), Under Armour (owed $2.4mm), and the company CEO who owns 86% of the equity. Berkeley Research Group is at the helm of another liquidation: never before has a single firm's use of "tombstones" been so literal. 
  • Jurisdiction: W.D. of Michigan
  • Capital Structure: $49.4mm funded secured ABL debt (Wells Fargo)    
  • Company Professionals:
    • Legal: Warner Norcross & Judd LLP (Stephen Grow, R. Michael Azzi)
    • Financial Advisor: Berkeley Research Group LLC (Steve Coulombe)
    • Investment Banker: Stout Risius Ross Advisors LLC (Michael Krakovsky)
    • Liquidators: Tiger Capital Group LLC and Great American Group LLC
    • Intellectual Property Disposition Consultant: Hilco IP Services LLC (Gabriel Fried)
    • Real Estate Advisors: A&G Realty Partners LLC (Michael Jerbich)
      • Legal: Wachtell Lipton Rosen & Katz (Neil Snyder) & (local) Dickinson Wright PLLC (Allison Bach)
    • Claims Agent: Rust Consulting/Omni Bankruptcy (*click company name above for docket)
  • Other Parties in Interest:
    • Wells Fargo NA
      • Choate Hall & Stewart LLP (Jonathan Marshall, Katherine Reynolds, Kevin Simard) & (local) Bodman PLC (Mark Bakst)
    • Official Committee of Unsecured Creditors
      • Legal: Cooley LLP (Cathy Herschkopf, Seth Van Aalten, Robert Winning, Evan Lazerowitz)
    • Phoenix Capital Management Co.
      • Legal: Sugar Felsenthal Grais & Hammer LLP (S. Jason Teele, Nicole Stefanelli)

Updated 4/2/17