January 4 , 2019 – Plus-size retailer FULLBEAUTY Brands (FULLBEAUTY or the “Debtors”) has published a Joint Prepackaged Chapter 11 Plan and related Disclosure Statement in advance of filing a Chapter 11 Petition later this month. On January 3, 2019, the retailer announced a pre-packaged restructuring agreed amongst the Debtors and the Debtors’ major stakeholders, including (i) an ad hoc committee comprised of holders of approximately 99% of the “First Lien Claims,” (ii) an ad hoc committee comprised of holders of approximately 95% of holders of the “Second Lien Claims” and (iii) the Debtors’ prepetition equity sponsors, Apax Partners (“Apax”) and Charlesbank Capital Partners (“Charlesbank,”). The three groups are in line to receive 87.5%, 10.0% and 2.5%, respectively, of the Debtors’ new, post-emergence common stock. For the holders of the Debtors’ first and second lien debt, the Plan means forgiving @$600mn and $330mn of debt, respectively, albeit in exchange for equity in an arguably right-sized retailer.
For the private equity sponsors, global powerhouse Apax in particular, it is a devastating defeat. As recently as August 2015, Apax acquired a controlling stake in FULLBEAUTY from Charlesbank and Webster Capital, with Charlesbank maintaining a “substantial” ownership after that transaction closed. Charlesbank and Webster had purchased FULLBEAUTY, then known as OneStopPlus Group, In February 2013 from French retailer PPR SA for $525mn ($157mn of that consideration in equity). According to Moody’s, Charlesbank and Webster extracted about $500mn in dividends from FULLBEAUTY in the two years preceding their sale to Apax.
According to the Disclosure Statement, “The anticipated benefits of the Plan include:
- Conversion of approximately $782 million of the First Lien Credit Facility to a combination of equity, $175 million of a new first lien facility, and up to $35 million of a new junior loan;
- Conversion of approximately $345 million of the Second Lien Credit Facility to a combination of equity, warrants, and $15 million of a new junior loan;
- Prompt emergence from chapter 11; and
- A new money capital infusion in the form of a $30 million exit first lien facility, backstoppedby certain of the First Lien Lenders.
The Plan provides for a comprehensive restructuring of the Debtors’ prepetition obligations, preserves the going-concern value of the Debtors’ businesses, maximizes all creditor recoveries, and protects the jobs of the Debtors’ invaluable employees.”
Classses 5 and 6 exchange $900mn in debt for 97.25% of post-emergence FULLBEAUTY common stock
The Debtors Plan anticipates $900mn in debt reduction which is to come from two of the Debtors’ three impaired classes. The three impaired classes are Class 4 (“FILO Claims”), Class 5 (“First Lien Claims”) and Class 6 (“Second Lien Claims”). Recognizing the importance of existing trade relationships to a going concern business, Class 7 (“General Unsecured Claims”) has been left unimpaired and will receive a 100% recovery.
- Class 4 is comprised of the holders of approximately $75mn outstanding under the Debtors’ first-in, last-out (“FILO”) prepetition facility. Although technically “impaired” (the rights of holders are being modified), holders of FILO debt are expected to emerge largely unscathed; with pro rata shares of $75mn in the Debtors’ post-emergence senior facility (interest on their claims might even paid in cash).
- Class 5 is comprised of holders of approximately $782mn outstanding under the Debtors’ first lien credit facility (the “First Lien Credit Facility”). This class is being asked to forgive between $572mn and $607mn in exchange for 87.5% of the emerged Debtors’ new common stock and an up to $35mn stake in a new junior loan (the “New Junior Loan”).
- Class 6 is comprised of holders of approximately $345mn outstanding under the Debtors second lien credit facility (the “Second Lien Credit Facility”). IF this class votes to accept the Plan, holders of claims will (i) exchange $330mn of their debt and (ii) forego a $10mn interest payment in exchange for 10.0% of the emerged Debtors’ new common stock and their pro rata stake in $15mn of the New Junior Loan.
The remaining 2.5% of the emerged Debtors new common stock is to go to the Debtors’ private equity sponsors, with 72.44% of that remainder going to Apax and 27.56% to Charlesbank.
The following is a full summary of classes, claims, voting rights and estimated recoveries (defined terms are as defined in the Disclosure Statement):
- Class 1 (“Other Secured Claims“) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated recovery is 100%.
- Class 2 (“Other Priority Claims“) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated recovery is 100%.
- Class 3 (“ABL Claims“) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated recovery is 100%.
- Class 4 (“FILO Claims“) is impaired and entitled to vote on the Plan. The aggregate estimated amount of claims is $75mn and estimated recovery is 100%. Holders will receive at the Debtors’ election, either their pro rata share of (i) $75mn of the New First Lien Term Loan and payment of any accrued but unpaid interest, fees, and expenses in Cash or (ii) $75mn plus any accrued but unpaid interest, fees, and expenses of the New First Lien Term Loan.
- Class 5 (“First Lien Claims“) is impaired and entitled to vote on the Plan. The aggregate estimated amount of claims is $781,568,965.52 (plus interest, fees, etc.) and estimated recovery is (i) for holders electing to participate in the Junior Loan 28.9% – 34.4% or (ii) for holders not electing to participate in the Junior Loan 27.6% -41.3%. Holders will receive their pro rata share of (i) $175mn of the New First Lien Term Loan and (ii) subject to Article III.B.6.c of the Plan, 87.5% of the New Common Stock, subject to dilution by the Option Rights, Warrants, and Management Incentive Plan; provided that a Holder of an Allowed First Lien Claim may check the applicable box on the Class 5 Ballot to receive in lieu of New Common Stock (which forfeited shares shall be distributed Pro Rata to non-electing Holders ) a principal amount of the New Junior Loan that is equal to 85% of the Exchange Benchmark Value of such Holder’s original New Common Stock distribution (i.e., a 15% discount to the Exchange Benchmark Value of its original New Common Stock distribution); provided, further, that electing Holders of Allowed First Lien Claims shall not receive more than $35 million in aggregate principal amount of the New Junior Loan.
- Class 6 (“Second Lien Claims”) is impaired and entitled to vote on the Plan. Estimated recovery is 4.8%-7.3%. The aggregate estimated amount of claims is $345mn (plus interest, fees, etc.). Holders will receive (i) If Class 6 votes to accept the Plan, their pro rata share of (A) $15mn of the New Junior Loan; (B) 10% of the New Common Stock, subject to dilution by the Option Rights, Warrants, and the Management Incentive Plan; and (C) the Second Lien Warrant Package described in the Warrant Documents or (ii) If Class 6 votes to reject the Plan, no distribution shall be received under the Plan, and the 10% of the New Common Stock shall be reallocated to Allowed First Lien Claims in Class 5 and distributed in accordance with Article III.B.5.c of the Plan.
- Class 7 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Estimated recovery 100%. Holders’ claims will be reinstated and satisfied in the ordinary course.
- Class 8 (“Intercompany Claims”) is impaired/unimpaired, deemed to reject/accept and not entitled to vote on the Plan. Estimated recovery is 0-100%. Intercompany Claims will be reinstated or cancelled.
- Class 9 (“Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated recovery is 0%. Equity interests will be cancelled.
- Class 10 (“Intercompany Interests”) is impaired/unimpaired, deemed to reject/accept and not entitled to vote on the Plan. Estimated recovery 0-100%. Intercompany Claims will be reinstated or cancelled.
The Disclosure Statement attached the following exhibits:
- Exhibit A: Joint Prepackaged Chapter 11 Plan of Reorganization
- Exhibit B: Restructuring Support Agreement (and exhibits thereto, including the Restructuring Term Sheet, term sheets regarding the Exit New Money Facility, New First Lien Term Loan, New JuniorDebt, Warrants, Purchase Option, and Governance)
- Exhibit C: Liquidation Analysis
- Exhibit D: Valuation Analysis
- Exhibit E: Financial Projections
- Exhibit F: Corporate Organizational Chart
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