Mon 08/03/2020 12:45 PM
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Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
Plan / Disclosure Statement
DS Approval Motion
Bid Procedures Motion
Cash Collateral Motion
Store Closing Sales Motion
First Day Hearing Agenda

The above relevant documents related to the Lord & Taylor bankruptcy filing are available to current Americas Middle Market and First Day by Reorg clients and trialists only. Please request access to continue following this and other bankruptcy filings in the Americas

 


​​Department store chain Lord & Taylor filed for chapter 11 bankruptcy filing Sunday afternoon under lead debtor Le Tote, Inc. in the Bankruptcy Court for the Eastern District of Virginia. “Recognizing the challenges that have beset many of their peers in the retail space who have filed for chapter 11 only to be unable to reorganize or confirm a plan without lengthy and expensive in-court proceedings,” the debtors have also filed a plan and disclosure statement.

According to the first day declaration of CRO Ed Kremer, the debtors intend to continue marketing the Le Tote and Lord & Taylor assets as a going concern, while also conducting store closing sales under agreement with Hilco and Gordon Brothers. The debtors’ plan sets forth two key goals for the cases, the declaration says: “(1) to swiftly and efficiently monetize the value of the Debtors’ estates and (2) to distribute estate assets in accordance with the priorities of the Bankruptcy Code.” According to the Kremer declaration: “The Debtors’ prepetition secured lenders support the marketing of Le Tote and Lord & Taylor and have conditioned the use of cash collateral on certain sale process milestones, including, among others, that the Court (a) enter an order approving the sale of Le Tote no later than October 5, 2020, and (b) unless the Debtors have not received one or more binding bids in form and substance satisfactory to the prepetition agents, approving the sale of Lord & Taylor no later than October 20, 2020” (emphasis added).

The first day hearing has been scheduled for today, Monday, Aug. 3 at 1 p.m. ET. The case docket can be found on Reorg HERE.

Under the debtors’ proposed plan, creditors will receive cash distributions “made pursuant to a waterfall priority scheme in accordance with the Bankruptcy Code.” The disclosure statement notes that recoveries for each class of claims “depend entirely on the extent to which classes senior to them are satisfied.” Prepetition ABL claims and term loan credit facility claims are estimated to recover 100%, with recoveries for third-priority secured HBC claims as well as general unsecured claims marked “to be determined.”

The company reports $100 million to $500 million in both assets and liabilities. The debtors’ prepetition funded debt is below:
Lord & Taylor bankruptcy filing debtors’ prepetition funded debt from Americas Middle Market by Reorg

As to the relative priority of liens securing the debtors’ secured debt, the DS states:

  • Obligations under the ABL are secured by a first-priority lien in substantially all of the Le Tote loan parties’ assets, including, among other things, all accounts, equipment and fixtures, intellectual property, and goods and inventory.

  • Obligations under the term loan credit facility are secured by a second-priority lien in substantially all of the Le Tote Loan Parties’ assets.

  • Obligations under the seller note are “secured in favor of HBC Propco (in such capacity, the ‘Junior Creditor Representative’) by a third-priority lien in substantially all of the Le Tote loan parties’ assets.”


Forbearance agreements with the ABL and term agents allowed the debtors to reopen their Lord & Taylor locations prepetition.

A list of equityholders is HERE. HBS US Propco Holdings LLC owns 27.64% of Le Tote’s equity.

The debtors currently have approximately $2.8 million in cash on hand, which is fully encumbered by the liens of the prepetition secured parties. Additionally, the debtors state that they have been operating under cash dominion since Spring 2020 and the funds remaining in the debtors’ store and credit card concentration accounts along with all other cash receipts and proceeds are swept daily to pay down obligations under the ABL facility.

Le Tote acquired Lord & Taylor from HBC US Holdings Inc., a subsidiary of Hudson’s Bay Company ULC (f/ka/ Hudson’s Bay Company) and HBS US Propco Holdings LLC, a subsidiary of HBC US Holdings in November 2019. The transaction was designed to provide Le Tote “access to brand recognition through the iconic Lord & Taylor name and access to new customers through Lord & Taylor’s preexisting customer base, while providing Lord & Taylor access to Le Tote’s proprietary technology and the ability break into the rental market during a time of declining sales at traditional retailers.” Le Tote entered into a related transition services agreement, or TSA, with certain Hudson’s Bay Company affiliates, and HBC US Propco Holdings was obligated to pay rent for Lord & Taylor physical locations (excluding common area maintenance and other similar charges).

The debtors’ obligations under the TSA are guaranteed by the ABL borrowers and cross-securitized with the collateral that secures the seller note. On March 23, the debtors elected to enter into a 15 business day grace period under the TSA with respect to approximately $4 million of obligations due.

Even before the Covid-19 pandemic, the debtors say that “like many other retail companies,” they were facing “adverse macro-trends” that have only been compounded by the pandemic. These factors, along with “burdensome” TSA charges, have “left the Debtors overleveraged.” The debtors suspended the majority of their vendor payments and furloughed or laid off approximately 4,690 employees (of which they have recalled 400 since the slow reopening) in the months leading up to the filing. As a result of “vigorous” negotiations with Hudson Bay to restructure the TSA, the parties entered into an April 10 term sheet that “offset certain amounts owed under the TSA against certain amounts owed by HBC to the Debtors, and also restructured go-forward services under the TSA to reflect the Debtors’ scaled-down enterprise,” that “greatly” reduced the debtors’ go-forward payments. Hudson Bay would provide scaled-down services through Dec. 31, in exchange for which the debtors agreed to pay approximately $550,000 per month in advance. On Jan. 1, 2021, the TSA payments would revert to their original terms. The debtors stress that the term sheet resolved a potential cross-default under the debtors’ secured credit facilities.

The restructuring committee of the debtors’ board (with Pamela Corrie and Matthew Kahn as independent directors) is investigating certain claims and causes of action against insiders or third parties including in connection with the Le Tote acquisition. The restructuring committee is also investigating the plan releases.

The debtors are represented by Kirkland & Ellis and Kutak Rock. Berkeley Research Group is the debtors’ financial advisor and Nfluence Partners is serving as investment banker. Stretto is the claims and noticing agent. Katten Muchin Rosenman is independent counsel to the restructuring committee. The case has been assigned to Judge Keith L. Phillips (case number 20-33332).

Background

The debtors are a combination of Le Tote, a venture-backed fashion retail subscription service founded in 2012, and Lord & Taylor, the “iconic luxury retailer which traces its origins to 1826 in New York.” Through these vehicles, the debtors operate an online, subscription-based clothing rental service and a full-service fashion retailer with 38 brick-and-mortar locations, along with e-commerce. The debtors say that Le Tote “has been described as the ‘Netflix of fashion.’” The debtors have 651 employees.

Le Tote acquired certain assets comprising the Lord & Taylor business, including an online retail platform, leases for 38 brick-and-mortar stores in the U.S., inventory and Lord Y Taylor intellectual property. The Le Tote acquisition was financed through (a) $75 million in cash (subject to adjustments as specified in the APA), including cash borrowed under the ABL and term loan facilities, (b) issuing a secured promissory note to HBC Propco in the original principal amount of approximately $30 million and (c) issuing preferred shares convertible into approximately 25% of Le Tote’s post-closing issued and outstanding equity on a fully diluted basis, to HBC Propco.”

The company’s corporate organizational chart follows:
Lord & Taylor bankruptcy filing organizational chart from Americas Middle Market by Reorg

(Click HERE to enlarge)

The debtors’ largest unsecured creditors are listed below:



The case representatives are as follows:



DS Approval Motion / Confirmation Timeline

The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
Lord & Taylor bankruptcy filing confirmation timeline from Americas Middle Market by Reorg

Plan / Disclosure Statement

Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Lord & Taylor bankruptcy filing plan classes from Americas Middle Market by Reorg

Treatment of Claims and Interests

The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
Lord & Taylor bankruptcy filing classification of and proposed distributions from Americas Middle Market by Reorg

The debtors state that the plan contemplates distributions being made pursuant to a waterfall priority scheme and, thus, the recoveries for each class depend on the extent to which classes senior to each are satisfied.

The plan provides for releases by the debtors for the debtors, the reorganized debtors, the ABL agent, the ABL lenders, the term loan agent and the term loan lenders.

The plan also provides releases by holders of claims and interests to the debtors, the reorganized debtors, the ABL agent, the ABL lenders, the term loan agent, the term loan lenders, all holders of claims or interests that are presumed to accept the plan and who opt into the releases in the plan, all holders of claims or interests who vote to accept the plan, all holders of claims or interests that vote to accept or are deemed to accept the plan, all holders of claims or interests that abstain from voting on the plan and who do not affirmatively opt out of the releases provided by the plan by checking the box on the applicable form indicating that they opt not to grant the releases provided in the plan, all holders of claims or interests that vote to reject the plan or are deemed to reject the plan and who do not affirmatively opt out of the releases provided by the plan by checking the box on the applicable form indicating that they opt not to grant the releases provided in the plan.

In addition, the plan includes an exculpation provision in favor of the debtors, the reorganized debtors, the plan administrator, the ABL agent, the ABL lenders, the term loan agent, the term loan lenders and the UCC and each member.

The financial projections, liquidation analysis and a valuation analysis of the reorganized entity have not been provided and remain bracketed in the DS on file.

Cash Collateral Motion

The debtors seek to use the cash collateral of their senior secured parties, Wells Fargo Bank, as ABL agent, the ABL lenders, TCG BDC, Inc. as term loan agent, and the term lenders as well as the cash collateral of HBC US Holdings, Inc. (f/k/a/ Lord & Taylor Acquisition Inc.), as HBC agent and HBC US Propco Holdings LLC (f/k/a Lord & Taylor Holdings LLC).

In support of the proposed use of cash collateral, the debtors filed the declaration of Robert Duffy of Berkeley Research Group, who states that the debtors’ retail business only generates cash by selling inventory, the proceeds of which constitute collateral of the prepetition lenders. Duffy stresses that without access to this cash collateral, the debtors will not have adequate unencumbered cash on hand to maintain their operations, to fund payroll, working capital, capital expenditures and other general corporate expenses and to fund the marketing processes and store closing. Duffy states that the debtors were able to reach an agreement with the ABL agent and the term loan agent for the consensual use of cash collateral.

The company proposes the following adequate protection to its prepetition lenders: replacement liens for the ABL agent, the term loan agent and HBC agent; default interest; allowed superpriority administrative expense claims to the ABL agent, the term loan agent and the HBC agent; mandatory paydowns of the ABL obligations; payment and review of senior lender and HBC fees and expenses; $165,000 consent fee per week between the petition date and until such time as the ABL obligations are paid in full in cash to the ABL agent and term loan agent; and $40,000 consent fee per week continuing until such a time as the term loan obligations are paid in full to the term loan agent.

In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b), subject to entry of a final order.

The carveout for professional fees is $50,000.

The proposed budget for the use of the cash collateral is HERE.

The chapter 11 cases are subject to the following milestones:

  • One day following the petition date: Debtors shall file store closing motions;

  • 30 days following the petition date: Entry of an order approving the bidding and auction procedures governing the sale of all or substantially all of the debtors’ assets related to the debtors’ Le Tote business (other than assets sold pursuant to the Store Closing Liquidation Agreement) and the sale of all or substantially all of the debtors’ assets, including scheduling dates for the auctions and scheduling the hearing to consider approval of the sales;

  • 45 days following the petition date: Entry of a final cash collateral order;

  • Sep. 30: Commence the auction (if there is more than one bid) for the sale of Le Tote and select the winning bid for the Le Tote sale;

  • Oct. 5: Entry of an order approving the Le Tote sale;

  • Oct. 15: Commence the auction (if there is more than one bid) for the Lord & Taylor sale, and select the winning bid for the L&T sale;

  • Oct. 20: Entry of an order approving the L&T sale;

  • Nov. 6: Debtors shall have made payment in full of all outstanding ABL obligations; and

  • Nov. 20: Debtors shall have made payment in full of all outstanding term loan obligations.


Bid Procedures Motion

The debtors seek approval of the proposed bidding procedures for the sale transactions for the assets related to the Le Tote business and related to Lord & Taylor business. The debtors’ prepetition sale process, through Nfluence, canvassed 128 parties, of which 13 entered into confidentiality agreements, and the debtors add they are “engaged in active dialogue with several potential bidders with respect to both Le Tote and Lord & Taylor and will continue this dialogue postpetition” (emphasis added).

While the debtors do not have stalking horse bidders for either asset, they reserve the right to select a stalking horse for either sale up until at least two days before the auction. In the event that a stalking horse bidder is selected, the debtors reserve the right to provide bid protections, including an expense reimbursement, a work fee, and/or a break-up fee. While the motion does not appear to contemplate court approval for such bid protections, the debtors say they will consult with the UST and any UCC appointed in the case one day prior to providing the bid protections.

The debtors propose the following timetable for the sale of each of the categories of assets:
Lord & Taylor bankruptcy filing asset sale timeline from Americas Middle Market by Reorg


Initial and subsequent overbids must be “at least a 2% increase in cash, cash equivalents, or such other consideration that the Debtors deem equivalent, over the previous price.”

Store Closing Sales Motion

The debtors are seeking authority to continue or initiate the closing of 38 stores along with authority to pay customary bonuses to non-insider closing store employees. The debtors intend to conduct the store closings for each of the 38 locations and, to the extent potential bidders express interest in purchasing one of those locations, the debtors will cease the store closing at that location.

The debtors also seek authority to assume an inventory disposition agreement between Le Tote, Hilco Merchant Resources and Gordon Brothers Retail Partners. The agreement contemplates a base fee equal to 1% of gross proceeds as well as an incentive fee as follows based on the recovery percentage:
Lord & Taylor bankruptcy filing incentive fees from Americas Middle Market by Reorg

Other Motions

The debtors also filed various standard first day motions, including the following:

 
Lord & Taylor bankruptcy filing prepetition wages and benefits from Americas Middle Market by Reorg

 

Lord & Taylor bankruptcy filing taxes and fees payments from Americas Middle Market by Reorg

 
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