Restructuring Support Agreement
The RSA contemplates a debt-for-equity swap by which term lenders would hold substantially all of the debtors’ reorganized equity, subject to dilution. Under the restructuring term sheet attached to the RSA, ABL obligations will be either paid in full upon emergence or refinanced by an exit ABL facility provided by the ABL lenders.
Distributions to term loan lenders would depend on whether they participate in the $150 million DIP term loans. Term loan lenders that participate in the DIP would receive a participation in the first-out exit term facility plus “cash on account of accrued and unpaid interest and other charges payable through the Plan Effective Date.” All term loan lenders (including DIP and non-DIP lenders) would receive a participation in $88.2 million of last-out exit term loans and 55.1%
of reorganized equity (less the shares distributed on account of the $7.5 million backstop premium), subject to dilution on account of a management incentive plan. Term lenders that participate would receive the other 44.9%
of reorganized equity, subject to dilution by the MIP. If the plan is not confirmed and consummated, the DIP and backstop premium would be payable in cash.
General unsecured creditors would share $500,000 if they vote to accept the plan. If they vote to reject, they would receive the minimum treatment required to confirm the plan.
Under the RSA, the new board of the reorganized debtors would consist of:
- Teffner, the interim chair;
- The CEO;
- A director designated by Bain Capital;
- A director designated by Monarch Alternative Capital;
- A director designated collectively by Bain, Eaton Vance, Lion Point and Monarch; and
- Two directors determined by the backstop commitment parties.
Up to 10% of reorganized equity would be reserved for a management incentive plan.
The RSA also includes a term sheet for the $311.8 million first-out term exit facility and $88.2 million second-out term exit facility. Under the term sheet, these exit facilities would be secured by a lien on substantially all of the debtors’ assets. According to the term sheet, the “Definitive Documentation” shall “contain a ‘Momentive’ provision satisfactory to the Required Consenting Stakeholders.” Terms of the exit facilities are described below.
The exit term facility term sheet includes as a condition precedent that “with respect to store leases which are not rejected” the debtors must obtain “aggregate annual cost savings for FY2020 of at least $18 million.” Further, the term sheet provides that, with respect to the debtors’ premium segment and Lane Bryant (for example, the core brands), “the number of store closures that shall have occurred prior to the Effective Date shall be consistent with the closures anticipated under the Company’s business plan provided to the Ad Hoc Committee Advisors (as determined by the Ad Hoc Committee Advisors in their reasonable discretion) or as otherwise consented to by the Required Consenting Stakeholders.”
The RSA contemplates typical third-party release and exculpation provisions in favor of the debtors, prepetition lenders, agents and their respective representatives. In addition, on the execution date of the RSA, all of the previously unencumbered equity held by the loan parties in the LuxCo entities will be pledged as collateral for the DIP.
The RSA includes the following milestones:
DIP Financing Motion
- July 26 (three days from the petition date): Entry of interim cash collateral order;
- Aug. 27 (35 days from the petition date): Entry of final DIP order;
- Sept. 21 (60 days from the petition date): Approval of disclosure statement;
- Nov. 10 (110 days from the petition date): Confirmation of the plan; and
- Nov. 30 (130 days from the petition date): Effective date.
The up to $311.8 million DIP would include up to $161.8 million of “rolled-up” prepetition loans and $150 million in new money funded half by the backstop group and the other half open to all prepetition term lenders. The proceeds of the new-money DIP loans may be used, among other things, to pay certain costs, fees and expenses and to prepay or repay up to $50 million of borrowings under the ABL credit agreement.
The DIP loan would mature in six months and pay a coupon of L+1,175 basis points with a 1% LIBOR floor. Additionally, lenders would receive a 2.5% commitment fee on the new-money portion. Backstop parties would receive $7.5 million in cash.
Collateral for the DIP would include a first priority lien on all collateral securing the term loan claims and all unencumbered assets (excluding any assets that qualify as ABL priority collateral, which shall be subject to a second priority lien), including, for the avoidance of doubt, a first priority interest in the funding account for the DIP term facility and 100% of the equity interests in the LuxCo entities.
The DIP term facility will convert on a dollar-for-dollar basis into first-out term loans as discussed below. If, after the DIP term facility has been funded and if the conversion does not occur, the DIP term loans would be repaid in cash on their stated maturity. In addition, in such a scenario, or upon the debtors selling all or substantially all of their assets, the company would pay the DIP term loan lenders a cash premium equal to 11.23%.
The company proposes as adequate protection for ABL lenders cash interest at the non-default rate according to the credit agreement in addition to certain superpriority claims and replacement liens. The debtors shall not allow the availability of the ABL to fall below 10% of the credit agreement amount, or $40 million. If the debtors fail to comply with the minimum availability, the debtors would be required to deposit cash into a controlled cash reserve account maintained by the ABL agent or pay down the ABL obligations to restore compliance. In addition to receiving adequate protection liens, term lenders would receive the reasonable and documented costs and out-of-pocket fees for professionals.
The carve-out for professional fees is $5 million.
The proposed budget for the use of the DIP facility is HERE
According to the motion, failing to obtain a final order on terms reasonably acceptable to the prepetition agents on or before 35 days after the petition date would constitute a cash collateral termination event.
Teffner’s declaration includes term sheets for the first-out and second-out exit term loans. The first-out exit term loan would total $311.8 million after the conversion from the DIP. The second-out term loan, distributed to prepetition lenders, would total $88.2 million. The first-out exit loan would mature in four years following the effective date and pay L+11.75%. The second out loan would mature in five years and pay L+11%, with 8.5% of the interest paid in kind until the second anniversary of the loan. In addition, the first-out loans would amortize at 1% per year through the second anniversary and 3% thereafter. The second-out loans would amortize at 1% per year for the life of the loan.
The loans would be guaranteed jointly and severally on a senior basis by the direct parent of the borrower and each existing and subsequently acquired or organized direct or indirect material domestic subsidiary, material foreign subsidiary and (x) each Luxembourg subsidiary, (y) each guarantor party to the prepetition term loan credit agreement and (z) each subsidiary owning material intellectual property. Material subsidiaries would represent those that generate at least 2.5% of total company EBITDA.
Operational Restructuring Motions
The debtors have filed a number of motions to address operational matters including store closing sales and rejection of executory contracts and unexpired leases. Overall, the debtors anticipate closing at least approximately 1,100 store locations, disclosed in an exhibit to their store closing motion
. The debtors may need to close additional stores “to the extent lease negotiations are unsuccessful,” the motion notes. Relatedly, the debtors have filed a motion to reject
the leases for their previously closed and closing stores.
The store closing motion seeks approval to assume a July 22 consulting agreement with SB360 Capital Partners which would entitle SB360 to a consulting fee of 0.95% of gross proceeds plus 15% of gross sales of FF&E, “net only of sales tax.” SB360 would conduct store closing sales at all closing Catherines and Justice stores and select premium brand closing stores in Canada, Puerto Rico and Hawaii. Malfitano Advisors would separately close certain premium brand stores in the U.S.
The debtors filed a rejection procedures motion
to address executory contracts and unexpired leases generally. Separately, the debtors filed a motion to reject
franchise agreements for the Justice and LOFT brands with foreign franchisees.
The debtors also filed various standard first day motions, including the following: