J & M Sales – Files Backstop Agency Agreement with Hilco Merchant Resources, Seeks Court Orders to Provide Value-Maximizing Flexibility

September 20, 2018 – J & M Sales requested Court orders authorizing (i) a backstop agency agreement with Hilco Merchant Resources (the “Stalking Horse”) dated as of August 5, 2018 (the “Agency Agreement”), (ii) bidding protections for the Stalking Horse, (iii) bidding procedures and a related auction, (iv) a sale hearing and (v) a range of monetizing options including (a) a sale of assets or (b) store closing sales [Docket No. 467]. 

The backstop agency agreement notes, “In furtherance of the Debtors’ efforts to maximize the value of the Assets in a sales process and as a backstop to their efforts to sell their assets as a going concern and/or confirm a plan, the Debtors are also seeking authority, in part, to assume the Agency Agreement for a Store Closing Sales process that would serve as the stalking horse bid subject to higher and/or better bids. The Stalking Horse is also the agent conducting the GOB Sales of the Closing Stores described in the GOB Sales Motion. Specifically, the Stalking Horse has agreed to “backstop” the Debtors’ sales efforts by permitting the Debtors to pursue a going-concern sale of their Assets and/or confirmation of a plan.  The Stalking Horse will provide the Debtors with a guaranteed percentage of 75.0% (the ‘Guaranty Percentage’) of the aggregate Cost Value of the Merchandise, based upon the aggregate Cost Value of the Merchandise included in the Sale. The Guaranty Percentage to the Cost Value of the Merchandise is subject to adjustment depending on the cost value of the Merchandise. In the event that the cost value of the Merchandise is less than $119,000,000, each $400,000 (or pro rata thereof) increment decreases the Guaranty Percentage by 0.25%. Thus, the Agency Agreement provides the Debtors with flexibility to pursue whichever transaction will maximize their asset value and provide the greatest benefit for creditors. If the Debtors are unable to effectuate a restructuring or Going Concern Sale, the Agency Agreement and Approval Order would allow the Debtors to commence the Store Closing Sales no later than November 5, 2018. The Guaranty Percentage has been fixed based upon the aggregate Cost Value of the Merchandise included in the Sale being not less than $127,000,000 and not more than $135,000,000 (the ‘Merchandise Threshold’) as of the Sale Commencement Date….If the Debtors consummate a transaction with a party other than the Stalking Horse (the ‘Alternate Transaction’), then the Stalking Horse shall be entitled to a breakup fee in the amount of one million ($1,000,000) against which the $250,000 ‘Put Fee’ (the ‘Put Fee’) already paid by the Debtors to the Stalking Horse upon entry into the Agency Agreement shall be credited (the ‘Breakup Fee’)….The Secured Lenders have agreed to give the Debtors additional time to solicit bids and market their assets if the Debtors receive a total of $15,000,000 in conforming inventory on or prior to October 5, 2018 (the ‘Inventory Threshold’) pursuant to the terms of the final order granting Final Order Approving Postpetition Financing.” 

The following general timeline is also fixed: (i) an October 8, 2018 deadline for entry of order approving the motion (if the Inventory Threshold is achieved this is extended until October 26, 2018), (ii) an October 12, 2018 deadline for closing of sale(s) (if the Inventory threshold is achieved this is extended until October 31, 2018) and (iii) an October 10, 2018 deadline for entry of an approval order (if the Inventory Threshold is achieved, this is extended until October 29, 2018).