David’s Bridal, Inc. – Files Pre-packaged Chapter 11, expects to eliminate $400 million of Debt and Emerge in January 2019

November 19, 2018 – David’s Bridal, Inc. and three affiliated Debtors (together, “David’s Bridal” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-12635 [Docket No. 1]. The Company, an international bridal retailer and the largest U.S. destination for bridal gowns, wedding-related apparel, social occasion apparel and related accessories and services, is represented by Edmon L. Morton of Young Conaway Stargatt & Taylor as Delaware bankruptcy and conflicts counsel. Further board-authorized engagements include Debevoise & Plimpton as general bankruptcy counsel, Evercore Group as investment banker and AlixPartners as restructuring advisors. The Company’s petition notes between 50,000 and 100,000 creditors; estimated assets between $100 million and $500 million; and estimated liabilities between $500 million and $1 billion. Documents filed with the Court list the Company’s three largest unsecured creditors as (i) Wilmington Trust, National Association as Trustee for the Company’s 7.75% Senior Notes due 2020 ($270 million claim), (ii) California Wage & Hour Class Action, Irene Martinez ($1.35 million claim) and (iii) Ignite ($0.8 million claim).

In a press release announcing the filing and providing further detail on a restructuring support agreement announced (the “RSA”) on November 15, 2018, David’s Bridal advised that, “Implementing the RSA, which is supported by the vast majority of the Company’s term loan lenders and substantially all of its senior noteholders and equity holders, will reduce the Company’s debt by more than $400 million and provide significant financial flexibility to support long-term growth prospects. To implement the RSA, the Company voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code in the District of Delaware. The court-supervised process is expected to be completed by early January. David’s Bridal has sufficient liquidity to meet its business obligations and will continue to operate its business as usual throughout the court-supervised restructuring process.” 

Events leading up to the Chapter 11 filing

In a declaration in support of the Chapter 11 filing (the “Hilson Declaration”) [Docket No. 9], Joan Hilson, David Bridal’s Executive Vice President and Chief Financial and Operating Officer, outlined the events leading to the Company’s Chapter 11 filing. 

The Hilson Decalration notes, “Despite the significant headwinds facing the brick-and-mortar retail industry, over the past several years, the Debtors have experienced steady financial performance and only modest loss of market share. The vast majority of David’s Bridal stores generate positive EBITDA, and the Debtors have historically generated stable operating cash flows. The most significant factor leading to the commencement of these chapter 11 cases is the amount of debt on the Debtors’ balance sheet, most of which will mature with the next 12 months.” The Hilson Declaration then details the Company’s extensive efforts to refinance that debt as it came due and a building urgency as an October 15, 2018 interest payment approached. 

The Hilson Declaration continues, “After extensive deliberation in the weeks leading up to the Interest Payment Date, the Debtors determined that it would be in the best interests of their estates to defer payment of the October Coupon, utilizing the 30-day grace period under the Unsecured Notes Indenture to continue restructuring negotiations and to push the Creditor Groups towards a consensual deal….Before the Interest Payment Date, the Debtors’ vendors and customers had generally not voiced concern with the upcoming Term Loan maturity. After the missed October Coupon and the resulting media coverage and ratings downgrades, operational pressures began to mount in the form of new requests for letters of credit, negative publicity campaigns by competitors and social media speculation about a bankruptcy filing. Nevertheless, the Debtors had sufficient liquidity to manage through the business disruption…..In early November 2018, a fully consensual deal remained elusive despite the Debtors’ best efforts to pressure the Creditor Groups to resolve their differences. After more than a week of assessing the few options available for implementing a restructuring over the objections of one or more of the Creditor Groups, including a sale of substantially all of the Company’s assets to the Term Lenders, the Ad Hoc Term Lender Group and Oaktree presented a joint proposal outlining the contours of what would become the Prepackaged Plan. The Company welcomed this breakthrough development. After some further back-and-forth among the constituent groups, and after months of negotiations, the Debtors, the Ad Hoc Term Lender Group, Oaktree and Solace agreed on the key terms of the Prepackaged Plan and executed the Restructuring Support Agreement on November 18, 2018 with the holders of approximately 85% of the Term Loans (the  ‘Supporting Lenders’), holders of approximately 97% of the Unsecured Notes (the ‘Supporting Noteholders’ and, together with the Supporting Lenders, the ‘Supporting Creditors’) and the Debtors’ principal equity holders, CD&R and Leonard Green (the ‘Supporting Sponsors’).”

Restructuring Support Agreement and DIP financing

The RSA contemplates the continuation of the Company’s business through a recapitalization of the Company whereby David’s Bridal’s balance sheet will be substantially delevered in exchange for (i) distributions to the lenders under the Company’s $520.0 million credit agreement (the “Term Lenders,” who held $481. 2 million of senior bank debt as at the Petition date) of the vast majority of the reorganized Company’s common stock, new debt and rights to participate in an exit financing and obtain additional common stock and (ii) the holders of unsecured notes of the remaining common stock and warrants. Specifically, the Term Lenders have agreed, pursuant to the Restructuring  Support Agreement, to provide a $60.0 million debtor-in-possession senior secured delayed term loan facility, to provide incremental liquidity to meet the administrative costs incurred in the Chapter 11 Cases, and a $40.0-60.0 million priority secured term loan exit facility, the proceeds of which will be used to repay the DIP Term Loan Facility on the Effective Date. While the Company’s prepetition ABL lenders are not party to the RSA, they agreed in parallel negotiations to roll their prepetition facility into a $125.0 million DIP ABL facility which will continue to provide letter-of-credit support to the Company throughout the Chapter 11 process. This financing provides critical assurance that the Chapter 11 cases will be adequately funded and that the Company’s business will emerge well-capitalized upon their prompt exit from chapter 11.

In a press release announcing the RSA and DIP financing, the Company noted, “ [The] RSA…will reduce the Company’s debt by more than $400 million and provide significant financial flexibility to support the Company’s long-term growth prospects….As part of the agreement-in-principle, David’s Bridal’s term loan lenders have committed more than $40 million in new financing, which, in addition to existing cash on hand, will support the Company’s continued operations. The long-standing vendor and manufacturing partner relationships essential to David’s success are unimpaired during restructuring.”