🙈New Chapter 11 Bankruptcy Filing - Avenue Stores LLC🙈

Avenue Stores LLC

August 16, 2019

Retail, retail, retail.

Brutal. Absolutely B.R.U.T.A.L.

Avenue Stores LLC, a speciality women’s plus-size retailer with approximately 2,000 employees across its NJ-based HQ* and 255 leased stores,** is the latest retailer to find its way into bankruptcy court. On Friday, August 16, Avenue Stores LLC filed for chapter 11 bankruptcy in the District of Delaware. Like Dressbarn, another plus-size apparel retailer that’s in the midst of going the way of the dodo, any future iteration of the Avenue “brand” will likely exist only on the interwebs: the company intends to shutter its brick-and-mortar footprint.

What is Avenue? In addition to a select assortment of national brands, Avenue is a seller of (i) mostly “Avenue” private label apparel, (ii) intimates/swimwear and other wares under the “Loralette” brand and (iii) wide-width shoes under the “Cloudwalkers” brand. The company conducts e-commerce via “Avenue.com” and “Loralette.com.” All of this “IP” is the crux of the bankruptcy. More on this below. 

But, first, a digression: when we featured Versa Capital Management LP’s Gregory Segall in a Notice of Appearance segment back in April, we paid short shrift to the challenges of retail. We hadn’t had an investor make an NOA before and so we focused more broadly on the middle market and investing rather than Versa’s foray into retail and its ownership of Avenue Stores LLC. Nevertheless, with the benefit of 20/20 hindsight, we can now see some foreshadowing baked into Mr. Siegel’s answers — in particular, his focus on Avenue’s e-commerce business and the strategic downsizing of the brick-and-mortar footprint. Like many failed retail enterprises before it, the future — both near and long-term — of Avenue Stores is marked by these categorical distinctions. Store sales are approximately 64% of sales with e-commerce at approximately 36% (notably, he cited 33% at the time of the NOA). 

A brand founded in 1987, Avenue has had an up-and-down history. It was spun off out of Limited Brands Inc. and renamed in 1989; it IPO’d in 1992; it was then taken private in 2007. Shortly thereafter, it struggled and filed for bankruptcy in early 2012 and sold as a going-concern to an acquisition entity, Avenue Stores LLC (under a prior name), for “about $32 million.” The sale closed after all of two months in bankruptcy. The holding company that owns 100% of the membership interests in Avenue Stores LLC, the operating company, is 99%-owned by Versa Capital Management. 

Performance for the business has been bad, though the net loss isn’t off the charts like we’ve seen with other recent debtors in chapter 11 cases (or IPO candidates filing S-1s, for that matter). Indeed, the company had negative EBITDA of $886k for the first five months of 2019 on $75.3mm in sales. Nevertheless, the loss was enough for purposes of the debtors’ capital structure. The debtors are party to an asset-backed loan (“ABL”) memorialized by a credit agreement with PNC Bank NA, a lender that, lately, hasn’t been known for suffering fools. The loan is for $45mm with a $6mm first-in-last-out tranche and has a first lien on most of the debtors’ collateral. 

The thing about ABLs is that availability thereunder is subject to what’s called a “borrowing base.” A borrowing base determines how much availability there is out of the overall credit facility. Said another way, the debtors may not always have access to the full facility and therefore can’t just borrow $45mm willy-nilly; they have to comply with certain periodic tests. For instance, the value of the debtors’ inventory and receivables, among other things, must be at a certain level for availability to remain. If the value doesn’t hold up, the banks can close the spigot. If you’re a business with poor sales, slim margins, diminishing asset quality (i.e., apparel inventory), and high cash burn, you’re generally not in very good shape when it comes to these tests. With specs like those, your liquidity is probably already tight. A tightened borrowing base will merely exacerbate the problem.

Lo and behold, PNC declared the debtors in default on July 22; in turn, they imposed default interest on the debtors and initiated daily cash sweeps of the debtors’ bank accounts. Like we said. Suffer. No. Fools.*** The debtors owe $15.2mm on the facility. 

The debtors also have outstanding a subordinated secured note to the tune of $37.8mm. The note pays interest at 15% but is paid in kind.**** The lender on the note is an affiliate of Versa, and per the terms of the note, Versa had continued, at least through April 2019, to fund the business (and letters of credit for the debtors’ benefit) with millions of dollars of capital. 

If this sounds like a hot mess, well, yeah, sure, kudos. You’re clearly paying attention. It’s a dog eat dog world out there. Per the company:

The Debtors operate in an extremely competitive retail environment, facing competition from other specialty-retail stores, including Lane Bryant, Ashley Stewart, and Torrid, and mass-market retailers such as Walmart and Target, many of which are located in close proximity to Avenue stores. In addition to long-standing, traditional competitors within the plussize segment, there has been a recent influx of many other iconic fashion retail brands expanding their range of size offerings into the plus-size range, as well as a proliferation of new entrants targeting this same plus-size fashion market. Due to increased competition, the Debtors have faced significant pressure to maintain market share, which has directly and negatively affected their profitability.

Not that this is anything new. We all know this by now: competition is fierce (Stitch Fix Inc. ($SFIX)Neiman MarcusKohl’s Corporation ($KSS)Macy’s Inc. ($M) and others are now going after it hard), B&M sucks because leases carry higher expenses, store traffic is down, blah blah f*cking blah. The company continues:

…changes in consumer spending habits have necessitated many retailers to increase promotional activities and discounting, leading to thinner profit margins. Onerous brick-and-mortar lease terms and increased operating costs, during a period of downturn in the retail sector and deep discounting, have intensified retail losses.

Interestingly, in the face of surging U.S. retail sales in July,***** the company also notes that “a review of historic customer data indicates that Avenue customers are shopping less frequently than they once were….” They blame this on a “[s]hifts in consumer preferences” and the debtors’ emphasis on “fashion basics.” DING DING DING. No wonder customers are shopping there less frequently. “Basic” is the antithesis of Instagram-based retail these days. Basics can be purchased at any big box retailer; basics are now available via Amazon’s private label. Basics don’t create an influencer and, on the flip side, no influencer will market “basic.” Maybe Avenue could get away with “fashion basics” if it had brand-equity like SUPREME and was perceived as a luxury brand. But far from it. 

Speaking of basic, that pretty much describes the go-forward game plan. We’ll lay it out for you:

  • Engage an independent director to explore strategic alternatives;

  • Engage professionals (Young Conaway is legal and Berkeley Research Group as restructuring advisor and CRO)******;

  • Consider whether there’s going concern value, conclude, like, basically, “nope,” and then hire a consultant******* to solicit bids from liquidators for the B&M piece and an investment banker (Configure Partners) for the IP and e-commerce business; 

  • Issue WARN notices, RIF employees, and start shuttering stores (with intent to file a rejection motion on day 1 of the bankruptcy); 

  • Select a stalking horse bidder for the B&M assets from the pool of interested liquidators (in this case, Gordon Brothers and Hilco Merchant Resources LLC); 

  • Continue to search for a stalking horse bidder for the IP and e-commerce (at filing, there wasn’t one yet); and

  • Secure DIP financing (here, $12mm from PNC) to fund the cases while the B&M liquidation transpires and the banker searches under every rock under an extremely compressed timeframe (by 9/24/19) for that e-commerce/IP buyer.******** 

So we’ll know in the next 60 days what the future is for Avenue.

If there is one.


*Let’s pour one out for NJ. The state’s larger retailers are having a rough go of things lately, see, e.g., Toys R Us. The 2,000 figure is updated to reflect a recent round of layoffs. 

**The debtors are located primarily in shopping malls and shopping centers, doing business in 35 states. They have a distribution center for brick-and-mortar merchandise in Troy, Ohio, and a third-party warehousing facility located in Dallas, Texas, which handles logistics for e-commerce. The Troy center is the subject of a wholly unoriginal PE-backed sale/leaseback transaction. The debtors sold the center for $11.3mm and subsequently entered into a 15-year lease with the buyer, RD Dayton LLC. We mention this because sale/leaseback transactions have been getting hyper-focus these days as a tactic-of-choice by private equity overlords to extract returns out of portfolio companies’ assets with any actual value: real property. If you’re wondering why there is very little asset value left for unsecured creditors in retail cases, sale/leaseback transactions are often a culprit. Here, it’s especially egregious because Avenue doesn’t own ANY of its stores: the entire footprint is leased.

The debtors recently closed the Ohio center and transitioned its inventory to Texas and the company already filed a motion seeking to reject this lease (Docket 15).

***This is not extraordinary. Banks do this all of the time when debtors default. A liquidity starved company is almost always toast (read: bankrupt) once this happens. 

****PIK interest means that the interest accrues in the form of additional notes and is not subject to scheduled cash payments. 

*****Per Reuters:

Retail sales increased 0.7% last month after gaining 0.3% in June, the government said. Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Compared to July last year, retail sales increased 3.4%.

******Something tells us that the likes of FTI, A&M and AlixPartners are happy to cede the liquidating retailer market to Berkeley Research Group. 

*******This is one of the more ingenious things to come out of the restructuring market in recent years. These liquidator agreements are so unintelligible that they might as well be written in Dothraki. Hence the need for an intermediary to break out the secret decoder ring and figure out what is actually being contracted for. We don’t know: if something is so woefully incoherent that it requires a separate consultant just to interpret it, something tells us that obfuscation is a feature not a bug.

********If none is found, the liquidator will also get these assets as part of the agency agreement. 

  • Jurisdiction: D. of Delaware (Judge Silverstein)

  • Capital Structure:

  • Professionals:

    • Legal: Young Conaway Stargatt & Taylor LLP (Robert Brady, Andrew Magaziner, Ashley Jacobs, Allison Mielke, Betsy Feldman)

    • Financial Advisor/CRO: Berkeley Research Group (Robert Duffy)

    • Investment Banker: Configure Partners

    • Liquidators: Gordon Brothers and Hilco Merchant Resources LLC

    • Liquidation Consultant: Malfitano Advisors LLC

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

  • Other Parties in Interest:

    • Pre-petition & DIP Agent: PNC Bank NA

      • Legal: Blank Rome LLP (Regina Stango Kelbon)

    • Subordinated Lender: Versa Capital Management LP

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

💄New Chapter 11 Bankruptcy Filing - Beauty Brands LLC💄

Beauty Brands LLC

January 6, 2019

A second beauty bankruptcy in three weeks. We previously noted:

On December 19, 2018, a week after Glossier CEO Emily Weiss revealed that the direct-to-consumer beauty brand hit $100mm in sales, Glansaol, a platform company that acquires, integrates and cultivates a portfolio of prestige beauty brands — including a direct-to-consumer brand — filed for bankruptcy in the Southern District of New York.

Now, a Kansas City-based brick-and-mortar beauty retailer with 58 stores in 12 states, Beauty Brands LLC, filed for bankruptcy over the weekend in the District of Delaware. Though we’ve never heard of it, it is no small shop: the company generated $125mm of net sales for fiscal year ended February 3, 2018. 70% of its revenue came from retail products and 30% from salon and spa services. The company had an e-commerce platform that accounted for 6.2% of net sales. It does not own any real property, leasing each of its stores.

In December, the company’s lender, PNC Bank NA, declared a default on the company’s credit facility. Why? Per the Company:

Beauty Brands’ liquidity and financial position has been adversely affected by declining sales and rising costs associated with doing business as a predominantly “brick and mortar” retailer. These factors have adversely impacted the Debtors’ profitability and its liquidity, which in turn has made it increasingly difficult to source replenishment inventory, which in turn contributes to further declines in the Company’s sales.

Well, that certainly paints a nice picture of how trouble can spiral out of control. Compounding matters is the fact that the company decided to expand in the face of a changing brick-and-mortar retail environment…

From 2014 through 2016, Beauty Brands unsuccessfully attempted to reposition its brand identity and store model by opening 11 new format store locations, which required significant capital expenditures, deferral of other investment opportunities, and management’s focus on the new format stores to the detriment of its existing store locations. These new format store locations, which remain operational, have underperformed Beauty Brands’ expectations and contributed to operating losses incurred by the Debtors.

Despite pre-petition efforts to sell the company as a going concern, no buyers were forthcoming. Therefore, the company hired Hilco Merchant Resources LLC to commence a firm-wide liquidation. Nevertheless, the company holds out hope — given some 11th hour interest by two potential buyers — that it can auction approximately 33 of its stores (“Core Stores”). In the meantime, Hilco is pursuing “GOB” sales of the 23 remaining stores (“Closing Stores”)(PETITION Note: the company’s papers say there are 58 stores, and yet only 56 stores are accounted for in the company’s description of Core Stores and Closing Stores, though there is mention of one “Dark Store”). Hilco will also serve as the Stalking Horse Bidder for the Core Stores.

The company will pursue a short post-petition marketing and sale process with an aim towards an early February 2019 sale. The company will use a committed $9mm DIP from pre-petition agent, PNC Bank NA, to fund the process.

  • Jurisdiction: D. of Delaware (Judge Sontchi)

  • Capital Structure: $17.5mm ($6.9mm funded, including fees + interest)

  • Company Professionals:

    • Legal: Ashby & Geddes P.A. (Gregory Taylor, Stacy Newman, Katharina Earle, David Cook)

    • Financial Advisor/CRO: RAS Management Advisors LLC (Timothy Boates, Michael Rizzo)

    • Investment Banker: Lazard Middle Markets LLC (Dermott O’Flanagan)

    • Liquidator: Hilco Merchant Resources LLC

    • Claims Agent: Donlin Recano & Company Inc.

  • Other Parties in Interest:

    • DIP Agent: PNC Bank NA

      • Legal: Blank Rome LLP (Gregory Vizza, John Lucian)

    • Replacement Stalking Horse Bidder: Absolute Beauty LLC

      • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Gene Goldmintz, Joshua Greenblatt) & (local) Klehr Harrison Harvey Branzburg LLP (Dominic Pacitti)

    • Official Committee of Unsecured Creditors (TIGI Linea Corp., Deva Concepts LLC, L’Oreal USA S/D Inc.)

      • Legal: Kelley Drye & Warren LLP (Eric Wilson, Jason Adams, Lauren Schlussel) & (local) Saul Ewing Arnstein & Lehr LLP

      • Financial Advisor: Province Inc. (Carol Cabello)

New Chapter 11 Filing - Keystone Tube Company LLC (A.M. Castle & Co.)

Keystone Tube Company LLC (A.M. Castle & Co.)

  • 6/18/17 Recap: Publicly-traded ($CASL) Illinois-based specialty metals distribution company with customers in some hard hit sectors of late, e.g., oil and gas, retail, mining, defense, filed a prepackaged bankruptcy case to de-lever its balance sheet. 
  • Jurisdiction: D. of Delaware 
  • Capital Structure: $112mm first lien debt (Cantor Fitzgerald Securities), $177mm
  • 18 12.75% second lien notes (US Bank NA), $22.3mm '19 5.25% convertible third lien notes (US Bank NA)     
  • Company Professionals:
    • Legal: Pachulski Stang Ziehl & Jones LLP (Richard Pachulski, Jeffrey Pomerantz, Maxim Litvak, John Lucas, Peter Keane)
    • Financial Advisor & Investment Banker: Imperial Capital LLC (Joseph Kazanovski)
    • Claims Agent: KCC (*click on company name above for free docket access)
  • Other Parties in Interest:
    • Ad Hoc Lender Committee (At Filing: Corre Partners Management LLC, Highbridge Capital Management LLC, SGF Inc., Pandora Select Partners LP, Whitebox Advisors LLC, Wolverine Asset Management Ltd.)
      • Legal (except SGF Inc.): Paul Weiss Rifkind Wharton & Garrison LLP (Andrew Rosenberg, Jacob Adlerstein, Michael Rudnick) & (local) Young Conaway Stargatt & Taylor LLP (Pauline Morgan, Joel Waite, Ian Bambrick)
      • Legal (SGF Inc): Goodwin Proctor LLP (Michael Goldstein, Gregory Fox) & (local) Pepper Hamilton LLP (David Fournier, John Schanne)
      • Financial Advisor: Ducera LLC
    • Prepetition First Lien Agent: Cantor Fitzgerald Securities
      • Legal: Shipman & Goodwin LLP
    • Prepetition Indenture Trustee: US Bank NA
      • Legal: Dorsey & Whitney LLP (Eric Lopez Schnabel, Robert Mallard, Alessandra Glorioso)
    • Administrative Agent: PNC Bank NA
      • Legal: Goldberg Kohn Ltd (Jacob Marshall, Danielle Juhle) & (local) Blank Rome LLP (Josef Mintz)
    • Bank of America NA
      • Legal: Morgan Lewis & Bockius LLP (Jody Barillare, Rachel Jaffe Mauceri)
    • Nantahala Capital Management
      • Legal: King & Spalding LLP (Arthur Steinberg) & (local) The Rosner Law Group LLC (Frederick Rosner)

Updated 7/11/17 6:22 pm

Source: First Day Declaration.

Source: First Day Declaration.

New Chapter 11 Filing - Central Grocers Inc.

Central Grocers Inc.

  • 5/4/17 Recap: May the Fourth be with you. Illinois-based food coop - the 7th largest in the nation - founded in, gulp, 1917, filed for bankruptcy to pursue a sale of its Strack & Wan Til stores and its distribution center (after certain creditors tried to force a bankruptcy on it). The company was initially founded with 32 supermarket owners seeking increased purchasing power through strength in numbers. Today, the coop supplies over 400 stores in the Chicago area. The coop supports its own brand, Centrella, which, being frank here, is probably value detract because nothing says "quality" like shoddy label design. That "Beef Stew" and "Chunk Pineapple" (see below) looks tasty AF, doesn't it? This makes us want to blow chunks. Seriously, though, this is another story of disruption. Disruption caused by the commodities markets, in part, with beef, chicken, eggs and dairy generally being at relatively low prices. But also disruption caused by new entrants into the grocery segment, including Walmart, TargetCostco, and dollar stores. And, of course, Amazon, which is increasingly becoming Darth Vader, even though we're pretty certain nobody we know actually uses AmazonFresh for produce and the like. But, whatever, when in doubt, blame Amazon. That's a much better excuse than 1917-style design sensibility and a classic innovator's dilemma.
  • Jurisdiction: D. of Delaware (transferred to N.D. of Illinois)
  • Capital Structure: $225mm '18 RCF (PNC Bank NA), $22.5mm TL (Bank of the West)  
  • Company Professionals:
    • Legal: Weil (Ray Schrock, Stephen Karotkin, Sunny Singh, Daniel Gwen, Danielle Donovan) & (local) Richards Layton & Finger PA (Mark Collins, Paul Heath, Brett Haywood, David Queroli) & (local) McDonald Hopkins LLC (David Agay, Rion Vaughan)
    • Financial Advisor: Conway MacKenzie Inc. (Donald Harer, Alpesh Amin, Michael Musso, John Cannon, Matthew Sedigh, Daniel Johnson, Lauren Leach, Harry Bramson, Jennifer Chaing, Joseph Wirija, Michael Kulkarni, Michael Flynn)
    • Investment Banker: Peter J. Soloman Company (Derek Pitts)
    • Claims Agent: Prime Clerk LLC (*click on company name for docket)
  • Other Parties in Interest:
    • PNC Bank NA
      • Legal: Blank Rome LLP (Regina Stango Kelbon, Victoria Guilfoyle, Mark Rabinowitz, Gregory Vizza, Michael Schaedle)
    • Bank of the West
      • Legal: Thompson Coburn LLP (Mark Bossi, Victor Des Laurier, Diona Rogers)
    • Successful Bidder
      • Legal: Duane Morris LLP (Lawrence Kotler, Rosanne Ciambrone)
    • Official Committee of Unsecured Creditors
      • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Gianfranco Finizio) & (local) Saul Ewing LLP (Mark Minuti, Lucian Murley) & (local) Arnstein & Lehr LLP (Barry Chatz, Kevin Morse, William Williams)
      • Financial Advisor: FTI Consulting Inc. (Conor Tully)

Updated 7/13/17

http://www.central-grocers.com/

http://www.central-grocers.com/

New Chapter 22 Filing - Eastern Outfitters LLC

Eastern Outfitters LLC

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

Updated 5/31/17