Christopher & Banks
CASE SUMMARY: Christopher & Banks to Pursue Dual-Track E-Commerce Sale, GOB Sales at All 449 Women’s Apparel Retail Stores
Thu 01/14/2021 12:49 PM
Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration
Cash Collateral Motion
Store Closing Sales Motion
First Day Hearing Notice
Christopher & Banks, a Plymouth, Minn.-based women’s apparel and accessories retailer, filed chapter 11 petitions in the District of New Jersey late last night, Jan. 13. Determining that the sale of a traditional brick-and-mortar business is not possible under “current circumstances” but that its e-commerce business is an “attractive asset,” the company seeks to sell the e-commerce business while liquidating its traditional retail locations. The debtors engaged Hilco Merchant Resources (an affiliate of the debtors’ prepetition lenders ReStore Capital LLC and ALCC LLC) prepetition to liquidate inventory in their 449 retail stores. The case would be funded through the consensual use of cash collateral, which along with revenue from store closing sales the debtors project would be sufficient to support continued operations and reduce the amounts owed to the prepetition secured lenders through “structured paydowns.”
Continue reading for our Americas Middle Market team's analysis and case summary of the Christopher & Banks e-commerce sale and Request a Trial for access to our coverage of thousands of other stressed/distressed debt situations as well as access to the linked documents.
The debtors refer to a stalking horse in their first day declaration, saying they “believe and respectfully submit that a dual track process - that is, an orderly liquidation of their store inventory through GOB sales and a going concern sale of the eCommerce business to the Stalking Horse Bidder (or successful bidder) - maximizes the value of the Debtors’ assets and the recovery to creditors.” The first day pleadings and supporting documents make no other references to a stalking horse. The debtors say that they will file a bid procedures motion for the e-commerce business “shortly” after the petition date.
The company issued a press release saying that it expects to close a “significant portion, if not all,” of its brick-and-mortar stores. Christopher & Banks President and CEO Keri Jones says in the release that the decision to close stores and enter bankruptcy was driven by “financial distress resulting from the pandemic and its ongoing impact.”
Facing a series of defaults on various financial obligations, the debtors say that they are the latest victims of the “retail apocalypse” created first by customer migration away from brick-and-mortar stores and exacerbated more recently by the Covid-19 pandemic. Like Stage Stores asserts in its May 2020 first day declaration, Christopher Banks calls the Covid-19 pandemic its “proverbial nail in the coffin,” “following years of adverse market trends, including the shifting of sales from traditional brick-and-mortar retailers to online sellers, increased competition from big-box retailers, and changing consumer preferences.”
The first day hearing is set for tomorrow, Friday, Jan. 15, at 10 a.m. ET.
As of Dec. 31, 2020, the debtors’ balance sheet reflects consolidated assets of approximately $166 million in assets and consolidated liabilities of approximately $105 million. The company’s prepetition capital structure includes:
“Immediately before the petition date,” the prepetition ABL facility was assigned by Wells Fargo to ReStore. Pursuant to an intercreditor agreement, “the Prepetition ABL Lender possesses first-priority liens on the Prepetition Collateral, with the exception of certain ‘Term Priority Collateral,’ consisting of ‘Intellectual Property’ and proceeds thereof.”
The debtors provide the following chart including outstanding amounts and priorities of the prepetition loans:
The debtors also received a $10 million PPP loan in June 2020.
The debtors did not pay rent on their stores while closed due to Covid-19 and again suspended rental payments to landlords in November. The debtors say that shortly before the petition date, affiliates of Brookfield Properties Retail Inc. locked the debtors out of two Idaho stores but did not terminate the underlying leases.
The debtors are represented by Cole Schotz in Hackensack, N.J., as counsel, Dorsey & Whitney as special counsel, Berkeley Research Group as financial advisor, B. Riley Securities as investment banker and Hilco Merchant Resources as liquidator. Omni Agent Solutions is the claims agent. The case has been assigned to Judge Andrew B. Altenburg Jr. (case No. 21-10269).
Background
Christopher & Banks is a national specialty retailer featuring exclusively designed, privately branded women’s apparel and accessories at a “good value.” The debtors operate 449 retail stores in 44 states as well as a “substantial and growing” webstore. The stores are primarily in shopping malls and retail centers in smaller to mid-sized cities and suburban areas, with a focus on markets with populations of less than 75,000 people. The debtors have 2,991 employees. For the company’s fiscal third quarter ended Oct. 31, the company had net sales of $72.9 million and suffered operating losses of $10.5 million.
The debtors’ stores consist of (i) 31 Christopher & Banks stores, offering merchandise assortments in women’s apparel and accessories for missy and petite; (ii) 28 C.J. Banks stores, offering merchandise assortments in similar women’s apparel and accessories for plus-size women; (iii) 314 Christopher & Banks Missy, Petite, Women stores; and (vi) 76 outlet stores.
Christopher & Banks utilizes a broad base of manufacturers primarily in Cambodia, China, Indonesia and Vietnam, along with “some” domestic manufacturing. For the fiscal year ended Feb. 1, 2020, the debtors’ 10 largest suppliers accounted for 66% of the merchandise they purchased. The debtors distribute most of their finished products from a distribution center in Plymouth, Minn.
Christopher & Banks hired B. Riley in November to commence a marketing process, leading to 40 executed confidentiality agreements but no parties interested in purchasing some or all of the brick-and-mortar stores.
The company’s corporate organizational structure follows:
The debtors' largest unsecured creditors are listed below:
Cash Collateral Motion
The debtors request the use of cash collateral with the consent of their prepetition ABL and term loan lenders, proposing to use approximately $17.2 million of cash collateral on an interim basis during the first 30 days of these cases. The gross amount of $17.2 million is inclusive of a $5.2 million net amount that takes into account the generation of receipts per the budget.
The company proposes the following adequate protection to its prepetition lenders:
In addition, subject to the final order, 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).
The carve-out for professional fees is $500,000.
The proposed budget for the use of cash collateral is HERE.
The debtors submitted the declaration of Robert Shapiro, managing director at Berkeley Research Group, the debtors’ financial advisor, in support of the cash collateral motion.
The use of cash collateral is subject to the following milestones:
The lien challenge deadline is the earlier of 60 days from appointment of an official committee of unsecured creditors or 75 days from the petition date. The UCC lien investigation budget is $25,000.
Store Closing Sales Motion
The debtors seek to run store closing sales through Hilco, which began the sales on Jan. 7 and would conclude by Feb. 28. A list of stores is HERE. Hilco would be entitled to a fee of 1% of gross proceeds (the tier 1 fee), and may also be entitled to a tier 2 and tier 3 fee, as follows:
The agent would also earn a fee of 15% of gross proceeds of the sale of furniture, fixtures and equipment, and 5% of gross proceeds for additional goods. The debtors provided Hilco an advance expense payment of $250,000 and owe another advance payment of $300,000 upon entry of the interim order.
The debtors propose a store closing bonus plan for store-level non-insider employees in an aggregate amount of $639,000, assuming 100% of the eligible employees remain employed through the duration of the closing sales.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
Press Release
First Day Declaration
Cash Collateral Motion
Store Closing Sales Motion
First Day Hearing Notice
| Summary |
| Christopher & Banks is a women’s apparel and accessories retailer with 449 stores and a “substantial and growing” webstore |
| Calls the Covid-19 pandemic “the proverbial nail in the coffin” for the debtors, exacerbating pre-existing retail market woes |
| Seeks to sell e-commerce business while running going-out-of-business sales for its brick-and-mortar stores |
| Proposes to fund the case with consensual cash collateral use |
Christopher & Banks, a Plymouth, Minn.-based women’s apparel and accessories retailer, filed chapter 11 petitions in the District of New Jersey late last night, Jan. 13. Determining that the sale of a traditional brick-and-mortar business is not possible under “current circumstances” but that its e-commerce business is an “attractive asset,” the company seeks to sell the e-commerce business while liquidating its traditional retail locations. The debtors engaged Hilco Merchant Resources (an affiliate of the debtors’ prepetition lenders ReStore Capital LLC and ALCC LLC) prepetition to liquidate inventory in their 449 retail stores. The case would be funded through the consensual use of cash collateral, which along with revenue from store closing sales the debtors project would be sufficient to support continued operations and reduce the amounts owed to the prepetition secured lenders through “structured paydowns.”
Continue reading for our Americas Middle Market team's analysis and case summary of the Christopher & Banks e-commerce sale and Request a Trial for access to our coverage of thousands of other stressed/distressed debt situations as well as access to the linked documents.
The debtors refer to a stalking horse in their first day declaration, saying they “believe and respectfully submit that a dual track process - that is, an orderly liquidation of their store inventory through GOB sales and a going concern sale of the eCommerce business to the Stalking Horse Bidder (or successful bidder) - maximizes the value of the Debtors’ assets and the recovery to creditors.” The first day pleadings and supporting documents make no other references to a stalking horse. The debtors say that they will file a bid procedures motion for the e-commerce business “shortly” after the petition date.
The company issued a press release saying that it expects to close a “significant portion, if not all,” of its brick-and-mortar stores. Christopher & Banks President and CEO Keri Jones says in the release that the decision to close stores and enter bankruptcy was driven by “financial distress resulting from the pandemic and its ongoing impact.”
Facing a series of defaults on various financial obligations, the debtors say that they are the latest victims of the “retail apocalypse” created first by customer migration away from brick-and-mortar stores and exacerbated more recently by the Covid-19 pandemic. Like Stage Stores asserts in its May 2020 first day declaration, Christopher Banks calls the Covid-19 pandemic its “proverbial nail in the coffin,” “following years of adverse market trends, including the shifting of sales from traditional brick-and-mortar retailers to online sellers, increased competition from big-box retailers, and changing consumer preferences.”
The first day hearing is set for tomorrow, Friday, Jan. 15, at 10 a.m. ET.
As of Dec. 31, 2020, the debtors’ balance sheet reflects consolidated assets of approximately $166 million in assets and consolidated liabilities of approximately $105 million. The company’s prepetition capital structure includes:
- Secured debt:
- Revolving loan (ReStore Capital LLC): No loans outstanding; $8.9 million of undrawn letters of credit.
- Term loan (ALCC LLC - affiliate of ReStore and Hilco): $5.1 million.
- Secured vendor financing program (ALCC LLC): $2.8 million (vendor program obligations are “Obligations” under the term loan).
- Unsecured debt: $54 million (including trade/vendor debt and lease obligations, but as leases are rejected, debtors say the amount will “increase significantly”).
- Equity: Since April 2019, Christopher & Banks Corp.’s common stock has been trading on the OTCQX, operated by OTC Markets Group, under the CBKC ticker after the New York Stock Exchange suspended trading. Marcellum Retail Opportunity Fund LP holds approximately 13.1% and Cleveland Capital LP holds approximately 6.1% of the common stock.
“Immediately before the petition date,” the prepetition ABL facility was assigned by Wells Fargo to ReStore. Pursuant to an intercreditor agreement, “the Prepetition ABL Lender possesses first-priority liens on the Prepetition Collateral, with the exception of certain ‘Term Priority Collateral,’ consisting of ‘Intellectual Property’ and proceeds thereof.”
The debtors provide the following chart including outstanding amounts and priorities of the prepetition loans:
The debtors also received a $10 million PPP loan in June 2020.
The debtors did not pay rent on their stores while closed due to Covid-19 and again suspended rental payments to landlords in November. The debtors say that shortly before the petition date, affiliates of Brookfield Properties Retail Inc. locked the debtors out of two Idaho stores but did not terminate the underlying leases.
The debtors are represented by Cole Schotz in Hackensack, N.J., as counsel, Dorsey & Whitney as special counsel, Berkeley Research Group as financial advisor, B. Riley Securities as investment banker and Hilco Merchant Resources as liquidator. Omni Agent Solutions is the claims agent. The case has been assigned to Judge Andrew B. Altenburg Jr. (case No. 21-10269).
Background
Christopher & Banks is a national specialty retailer featuring exclusively designed, privately branded women’s apparel and accessories at a “good value.” The debtors operate 449 retail stores in 44 states as well as a “substantial and growing” webstore. The stores are primarily in shopping malls and retail centers in smaller to mid-sized cities and suburban areas, with a focus on markets with populations of less than 75,000 people. The debtors have 2,991 employees. For the company’s fiscal third quarter ended Oct. 31, the company had net sales of $72.9 million and suffered operating losses of $10.5 million.
The debtors’ stores consist of (i) 31 Christopher & Banks stores, offering merchandise assortments in women’s apparel and accessories for missy and petite; (ii) 28 C.J. Banks stores, offering merchandise assortments in similar women’s apparel and accessories for plus-size women; (iii) 314 Christopher & Banks Missy, Petite, Women stores; and (vi) 76 outlet stores.
Christopher & Banks utilizes a broad base of manufacturers primarily in Cambodia, China, Indonesia and Vietnam, along with “some” domestic manufacturing. For the fiscal year ended Feb. 1, 2020, the debtors’ 10 largest suppliers accounted for 66% of the merchandise they purchased. The debtors distribute most of their finished products from a distribution center in Plymouth, Minn.
Christopher & Banks hired B. Riley in November to commence a marketing process, leading to 40 executed confidentiality agreements but no parties interested in purchasing some or all of the brick-and-mortar stores.
The company’s corporate organizational structure follows:
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Cache Valley Bank PPP
Program |
Logan, Utah | PPP Loan | $ 10,000,000 |
| Kostroma/Jiaxing
Mengdi I.E. Co. |
Jiaxing, China | Vendor | 2,618,537 |
| Presslink Ltd. | Macau, China | Vendor | 2,427,389 |
| Bluprint Clothing Corp. | Charlotte, N.C. | Vendor | 2,210,002 |
| Simon Property Group | Chicago | Landlord | 2,123,750 |
| Salesforce.com Inc. | Dallas | E-Commerce | 1,247,000 |
| Kostroma/Hangzhou
Jiayi Garment Co. LTD |
Hangzhou, China | Vendor | 1,154,946 |
| GGP LP | Chicago | Landlord | 1,031,166 |
| Letys Fashion Design | Chicago | Vendor | 989,718 |
| Kostroma/Jiangsu
Guota Huasheng Industrial Co. LTD |
Zhangjiagang, China | Vendor | 976,363 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | Michael D. Sirota | Cole Schotz | Hackensack, N.J. |
| Stuart Komrower | |||
| Felice R. Yudkin | |||
| Jacob S. Frumkin | |||
| Rebecca W. Hollander | |||
| Debtors' Special
Counsel |
N/A | Dorsey
& Whitney |
N/A |
| Debtors' Financial
Advisor |
Rob Shapiro | Berkeley
Research Group |
Boston |
| Debtors' Investment
Banker |
N/A | B. Riley
Securities |
N/A |
| Debtors' Liquidator | Ian S. Fredericks | Hilco
Merchant Resources |
Chicago |
| Counsel to ReStore
Capital, as Prepetition ABL Lender |
Kevin Simard | Choate Hall
& Stewart |
New York |
| Hampton Foushee | |||
| Co-Counsel to the
Prepetition Term Loan Agent, Secured Vendor Program Agent and the Debtors' Liquidator |
Steven E. Fox | Riemer &
Braunstein |
New York |
| Co-Counsel to the
Prepetition Term Loan Agent, Secured Vendor Program Agent and the Debtors' Liquidator |
Marcy McLaughlin Simth | Troutman
Pepper Hamilton Sanders |
Wilmington, Del. |
| U.S. Trustee | Lauren Bielskie | Office of the
U.S. Trustee |
Newark, N.J. |
| Jeffrey M. Sponder | |||
| Debtors' Claims
Agent |
Paul H. Deutch | Omni Agent
Solutions |
Woodland Hills, Calif. |
Cash Collateral Motion
The debtors request the use of cash collateral with the consent of their prepetition ABL and term loan lenders, proposing to use approximately $17.2 million of cash collateral on an interim basis during the first 30 days of these cases. The gross amount of $17.2 million is inclusive of a $5.2 million net amount that takes into account the generation of receipts per the budget.
The company proposes the following adequate protection to its prepetition lenders:
- Payment of interest and letter of credit fees at the default rate and other fees and expenses for the ABL lenders, payment of default interest and fees on the term loan, and accrual of interest for the vendor agent;
- Replacement liens for the ABL, term loan and vendor agent parties, including proceeds of avoidance actions subject to the final order;
- The debtors would establish ABL and term loan indemnity account in the amount of $250,000 each upon entry of a final order;
- Superpriority administrative expense claims for the ABL, term loan and secured vendor parties;
In addition, subject to the final order, 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).
The carve-out for professional fees is $500,000.
The proposed budget for the use of cash collateral is HERE.
The debtors submitted the declaration of Robert Shapiro, managing director at Berkeley Research Group, the debtors’ financial advisor, in support of the cash collateral motion.
The use of cash collateral is subject to the following milestones:
- Interim approval of assumption of liquidation consulting agreement: Entered within three days of petition date;
- Final approval of assumption of liquidation consulting agreement: Entered within 30 days of petition date;
- Bid procedures motion: Filed within five days of petition date (satisfactory to prepetition lenders);
- Bid deadline: Within 35 days of petition date;
- Final bid procedures order: Entered within 20 days of petition date;
- Final cash collateral order: Entered within 30 days of the petition date (satisfactory to prepetition lenders);
- Auction: Within 37 days of petition date;
- Sale order: Entered within 40 days of petition date;
- Payment of ABL obligations in full: Feb. 13; and
- Payment of term loan obligations in full: Feb. 26.
The lien challenge deadline is the earlier of 60 days from appointment of an official committee of unsecured creditors or 75 days from the petition date. The UCC lien investigation budget is $25,000.
Store Closing Sales Motion
The debtors seek to run store closing sales through Hilco, which began the sales on Jan. 7 and would conclude by Feb. 28. A list of stores is HERE. Hilco would be entitled to a fee of 1% of gross proceeds (the tier 1 fee), and may also be entitled to a tier 2 and tier 3 fee, as follows:
The agent would also earn a fee of 15% of gross proceeds of the sale of furniture, fixtures and equipment, and 5% of gross proceeds for additional goods. The debtors provided Hilco an advance expense payment of $250,000 and owe another advance payment of $300,000 upon entry of the interim order.
The debtors propose a store closing bonus plan for store-level non-insider employees in an aggregate amount of $639,000, assuming 100% of the eligible employees remain employed through the duration of the closing sales.
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case No. 21-10269.
- Designation as complex chapter 11 case
- Motion to pay employee wages and benefits
- The debtors estimate that they owe approximately $1.3 million to employees on account of prepetition payroll obligations, including unpaid wages and salaries, $18,172 on account of payroll maintenance fees, $456,880 with respect to payroll taxes, $50,100 on account of the debtors’ field bonus plan, $1,700 in connection with monthly prize contests for managers, $11,000 with respect to reimbursable expenses, $20,725 on account of short-term disability insurance obligations, $39,600 in for unpaid insurance costs, $8,207 with respect to workers’ compensation programs and $15,000 as severance pay to non-insider employees.
- Motion to use cash management system
- A list of the company's bank accounts is HERE.
- Motion to pay shipping/warehousing claims and import charges
- The debtors seek to pay approximately $6 million of shipping/warehousing claims and $235,000 on account of import charges.
- Motion to establish procedures for rejecting unexpired leases and executory contracts
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors estimate that they have collected or incurred approximately $2,256,000 in prepetition sales and use taxes that have not yet been remitted to the appropriate authorities, $1,727,000 of which will become payable within the first 21 days of the petition date.
- Motion to maintain customer programs
- The debtors estimate that approximately $11 million in issued gift cards and merchandise credits are outstanding.
- Motion to provide utilities with adequate assurance
- Motion to file consolidated creditors lists
- Motion to extend the deadline for filings schedules/statements to Feb. 26
- Application to appoint Omni Agent Solutions as claims agent
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