Relevant Documents:Company Cleansing MaterialsNoteholder Cleansing Materials
The Nine West debtors posted cleansing materials to their Intralinks site Sunday
, which were reviewed by Reorg Research and include certain financial projections, among other things. The debtors’ disclosure was followed by additional cleansing materials filed publicly on the docket by the ad hoc group of unsecured noteholders today
The debtors’ cleansing materials explain that on Aug. 10, Nine West entered into confidential negotiations with funded debt holders, including those holding senior secured term loan debt and senior unsecured term loan debt as well as unsecured noteholders
. The company continues to negotiate with certain holders of these claims, the debtors’ materials say, adding, however, that as a result of the expiration of confidentiality agreements with the unsecured noteholders and with Alden Global Capital LLC, Alden and the noteholders are no longer restricted. According to the materials, certain holders of unsecured term loan claims, secured term loan claims and notes claims provided the company with restructuring term sheets
.Noteholder Cleansing Materials
Separately, the ad hoc group of unsecured noteholders filed certain additional cleansing materials this morning, which they argue should have been included in the company’s cleansing disclosure in compliance with confidentiality agreements.
The noteholders assert with respect to the worthless stock deduction taken by Sycamore that the noteholders have been informed that Sycamore believes that disavowance of the worthless stock deduction could provide up to approximately $126 million in tax savings. According to the noteholders, “Sycamore offered to settle all potential estate claims and causes of action assertible against them through a cash payment of approximately $30 million and an unwinding of the previously taken worthless stock deduction.”
The noteholders say that as a result of the three 2014 acquisition transactions, Sycamore and KKR purchasers were obligated to perform a post-closing working capital true-up. Post-closing, say the noteholders, Sycamore determined not to engage in the post-closing working capital exercise, which “could have resulted in as much as $70 million being paid by the Purchasers to the Company,” although the company “disputes this amount.”
According to the noteholders, on Aug.30, the company transmitted a settlement proposal to the holders of the unsecured term loan with the following terms: (a) an allowed claim in the amount of $305 million; (b) a cash payment on account of that allowed claim in the amount of $85 million; (c) equity in a reorganized company of a value of $150 million based on the company’s chapter 11 plan setup value of $650 million; and (d) consideration of the holders of the UTL’s request to share in certain estate causes of action litigation proceeds. However, the noteholders add, Nine West has asserted that those terms and conditions are stale in light of subsequent negotiations.
On or about Aug. 28, say the noteholders, Nine West’s independent directors met with representatives of Sycamore and KKR to discuss the resolution of all estate causes of action assertible against both of these entities. During that meeting, the noteholders say, the independent directors offered to settle all such assertible causes of action for $470 million
, adding that discussions between the company and Sycamore remain ongoing.
The noteholders also assert that they were informed that $35 million of cash proceeds from the exit first lien term loan facility would be available to be distributed to lenders under the unsecured term loan.Company Cleansing Materials
The debtors’ cleansing materials include revenue, gross profit and adjusted EBITDA guidance through 2022 on a consolidated and a segment basis consisting of Jeanswear, Kasper, Jewelry, Anne Klein and Shared Services. Projections for Nine West Group, Nine West Canada and Easy Spirit are only for 2018. Below is the consolidated income statement and adjusted EBITDA projections through 2022. The debtors’ fiscal year 2022 adjusted EBITDA is approximately 63% higher than fiscal year 2018 adjusted EBITDA of $70.3 million. Previously in interim CEO Ralph Schipani’s first day declaration
, he disclosed that the debtors’ post-emergence projected EBITDA for fiscal 2019 was $105.8 million, while the cleansing materials now show this as $95.5 million.
The materials also disclosed capital expenditures and working capital projections on a quarterly basis through 2022.
The company also disclosed actual versus budget year-to-date revenue and EBITDA performance by segment through July for 2018 and 2017. The company generated total revenue of $720.7 million and adjusted EBITDA of $24.7 million through July 2018 on a YTD basis, $21.7 million and $7.6 million lower, respectively, than the company’s projected revenue and adjusted EBITDA budget.
The company’s cleansing materials include a 14-week DIP budget through November with a cash balance of $0.4 million, revolver availability of $47.3 million and a DIP balance of $6.4 million for the week ending Dec. 1.
The company also included a chapter 11 emergence sources and uses in its materials.
With respect to related party transactions, the company notes that as part of being acquired by Sycamore, it entered into a management advisory agreement with an affiliate of Sycamore. Although the advisory agreement does not provide for the payment of any management fees, Sycamore is entitled to receive reimbursement for out-of-pocket expenses incurred by Sycamore in connection with the agreement, says the document.
Separately, the company says that it owns a 34.25% interest in GRI Group Ltd., which is the exclusive licensee of several of its brands in Asia, including Nine West, Anne Klein and AK Anne Klein. During 2017, however, Nine West determined that its investment in GRI was fully impaired and recorded an impairment loss of $16 million, says the document.
The company also explains that on May 4, 2015, Sycamore sold its ownership interest in Stuart Weitzman to an unrelated third party and that on Feb. 19, 2016, Sycamore sold its ownership interest in Kurt Geiger to an unrelated third party. As a result, Stuart Weitzman and Kurt Geiger are no longer related parties, says Nine West.
On March 31, 2015, Nine West repaid notes payable to former owners of Kurt Geiger for £6.2 million ($9.2 million), according to the cleansing materials. Nine West says that it licenses the Nine West brand to Kurt Geiger for footwear product categories and sells product to Kurt Geiger at a cost-plus rate, ading that it also purchased certain Kurt Geiger footwear products for sale in retail stores and in its wholesale distribution.
Additionally, says the document, on Jan. 27, 2017, Nine West acquired 100% of the membership interests of Kasper Topco Ltd. for $40 million. Because Kasper was also owned by Sycamore, it was a related party under common control, explains Nine West. “Immediately prior to our acquisition of Kasper, Kasper repaid all of the outstanding borrowings under its revolving credit and secured term loan facilities and concurrently issued a dividend to Sycamore consisting of $30.1 million in net accounts receivable and $1.0 million in cash,” Nine West adds.
Nine West additionally states that it is in ongoing discussions with Sycamore regarding various potential claims and causes of action against Sycamore related to the company’s 2014 buyout and related carve-out transactions of the Stuart Weitzman, Kurt Geiger and Jones Apparel businesses.
Furthermore, says Nine West, on April 6, Nine West filed notices of intention to make a proposal in Canada under subsection 50.4 (1) of the Canadian Bankruptcy and Insolvency Act to allow discontinuance of the company’s Canadian footwear businesses.