Relevant Document:Agenda
During today’s first day hearing in the Barneys New York debtors’ cases, Judge Cecilia G. Morris generally approved the debtors’
requested relief including approving, on an interim basis, a $75 million junior DIP financing proposal by Brigade Capital Management and B.Riley Financial made on the proverbial “courthouse steps.” The Brigade-B. Riley DIP financing would provide $25 million of liquidity and take out $50 million of the debtors’ prepetition debt but on terms improved from the debtors’ initial $75 million junior DIP proposal from Hilco and Gordon Brothers. In aggregate, Brigade and B.Riley have agreed to an approximately $218 million DIP financing package that would take out the prepetition ABL and term loan debt, with that portion of the DIP financing above $75 million to be heard at a further interim hearing.
Joshua Sussberg of Kirkland & Ellis, counsel for Barneys, began the debtors’ presentation by framing the company as an “iconic” name brand and a “Manhattan staple.” After a 43-day “sprint” and “more twists and turns than I can imagine or have time today,” Sussberg said, the company has filed for chapter 11 protection.
In describing the events leading to the bankruptcy, Sussberg described an industrywide decline in brick and mortar stores, a massive shift to online channels, the growing power of brands to sell directly to consumers, cash dominion and an inability to pay trade vendors and “nonstop” media coverage. He also pointed to escalating rents, including rent for the debtors' Madison Avenue store increasing to $30 million from $16 million through arbitration in August 2018. Sussberg also recounted the company’s 2012 out-of-court restructuring, through which current equityholder Perry Capital took control.
He said that the proposed sale process is designed to find someone to operate the company as a going concern. To that end, he noted, Barneys intends to close 15 out of 22 locations while retaining its online brands and open new stores in Bal Harbour, Fla., Las Vegas and the American Dream mall in New Jersey, and is working with the landlord for the New York and Beverly Hills stores.
Sussberg gave a preview of the approximately $218 million DIP financing package from Brigade and B.Riley to provide liquidity and fund the takeout of Wells Fargo and TPG as the prepetition ABL and term loan lenders. Judge Morris heard the rest of the first day motions and after a brief recess, the parties came back to the DIP financing.
Saul Burian of Houlihan Lokey, the debtors’ investment banker, provided testimony on the new proposal, saying that the Brigade-B.Riley transaction provides for a complete takeout of the prepetition ABL and term loan facilities and also includes the Hilco-Gordon Brothers structure of $75 million junior facility, of which $50 million would be used to pay down the prepetition ABL facility. Along with the prepetition debt takeout, Burian noted the following additional enhancements offered by the Brigade-B.Riley proposal relative to the Hilco-Gordon Brothers proposal, including:
- Improved consignment pricing (7% interest plus $100,000/month fee, with a buyback of consigned goods for 105% of the retail price);
- Removed the LIBOR floor for the interest rate;
- On the profit split, the percentage has dropped to 37.5% from 45%;
- Provides additional liquidity with respect to the budget and merchandise spending; and
- The timeline has been extended to Oct. 24 (which Burian said would be helpful in particular for strategic and foreign buyers).
Burian also stressed that the company has been “living on fumes” and needs the DIP financing.
Under questioning from Alicia Leonhard of the U.S. Trustee’s office with respect to whether the Brigade-B.Riley proposal includes a liquidator, the debtors’ counsel advised that B.Riley does do liquidations but also provides inventory loans and that the company is not looking to liquidate but rather is attempting a going-concern sale of the business.
Sidney Levinson of Jones Day on behalf of B.Riley and Brigade said that his clients share Barneys’ view that there is significant going-concern value. Samuel Lovett of Paul Weiss on behalf of the landlord for the debtors’ Madison Avenue and Beverly Hills stores said that the landlord is very supportive of the DIP financing but asks the debtors to confirm that all rent would be paid when due (the debtors’ counsel confirmed that the debtors would honor obligations under the Bankruptcy Code on rent payment).
No parties expressed objections to interim DIP approval. Following another short recess, Chad Husnick of Kirkland & Ellis, counsel for the debtors, advised the court regarding subsequent enhancement to the Hilco-Gordon Brothers proposal - namely, dropping the sharing fee to 20% and decreasing the consignment percentage from 5% to 4% but without matching the variance flexibility and extended transaction timeline. Husnick advised the court that the debtors would continue to seek approval of the Brigade-B.Riley proposal.
Counsel for Hilco and Gordon Brothers said that they are not contesting approval today but intend to continue to discuss with the debtors to find the best possible deal.
Judge Morris approved the Brigade-B.Riley DIP financing on an interim basis. The interim approval allows the debtors to tap $25 million of the DIP facility for operating liquidity, while taking out $50 million of the prepetition ABL facility.
Judge Morris concluded the hearing by complimenting the parties for what has, at least thus far, been an “amazingly cooperative” hearing and noting how she looks forward to a “delightful” proceeding.
Judge Morris scheduled a second interim DIP financing hearing for Aug. 14 at 2:30 p.m. ET in Manhattan and the second day hearing for Wednesday, Sept. 4, at 10:30 a.m. ET in Poughkeepsie, N.Y. Judge Morris also scheduled a hearing for Aug. 22 at 12 p.m. ET in Manhattan solely with respect to the utilities motion.