Forever 21, Inc. – Down to Their Last $20mn, Debtors Get $60mn New Money DIP Financing Lifeline Critical to Purchase of Pre-Holiday Inventory

October 2, 2019 – The Court hearing the Forever 21 cases issued an interim order authorizing the Debtors to access $350.0mn in debtor-in-possession ("DIP") financing and use cash collateral. The DIP financing is comprised of (i) a $275.0mn senior secured superpriority ABL revolving credit facility provided by the Debtors' pre-petition ABL lenders (and being used principally to roll-up that pre-petition ABL debt) and (ii) a $75.0mn "new money" senior secured superpriority term loan facility provided by TPG Sixth Street Partners (the "DIP Term Lender") [Docket No. 133]. The interim order allows the Debtors to access to $60.0mn of the term loan on an interim basis with the $15.0mn balance to be made available upon issuance of a final DIP financing order. 

The Debtors sum up their immediate liquidity issues as follows: "The Debtors’ tight liquidity has impaired their ability to procure new inventory and, as a result, generate revenue, a significant issue that must be addressed before the critical 2019 holiday season…Importantly, disruptions in obtaining fresh inventory not only impairs sales and adversely affects cash flow generation, but also limits the availability of credit under the Debtors’ Prepetition ABL Facility, as the Debtors’ falling inventory levels substantially impact and reduce their borrowing base thereunder. As referenced above, a reduced borrowing base, in turn, further limits the Debtors’ access to liquidity, which is necessary to obtain fresh inventory, creating a downward liquidity spiral."

Of course much of the inventory that supports the Debtors' borrowing base has not actually been paid for by the Debtors, who had a staggering $350.0mn tab with trade suppliers as at the Petition date.

The Debtors' DIP financing motion [Docket No. 24] stated, “…the Debtors are pleased to present the Court with this Motion requesting approval of (a) the DIP ABL Facility, consisting of an up to $275 million senior secured superpriority ABL revolving credit facility provided by the Prepetition ABL Secured Parties, which includes a $75 million sublimit for the issuance of letters of credit issued under the Prepetition ABL Facility and a ‘creeping roll-up’ of the Prepetition ABL Facility, and (b) a $75 million new-money senior secured superpriority term loan facility provided by the DIP Term Lender, with up to $60 million made available immediately upon entry of the Interim Order. Because the Prepetition ABL Facility is being ‘rolled-up’ into the DIP ABL Facility and the DIP ABL Facility is senior in priority to the DIP Term Loan Facility (with respect to the collateral securing the DIP ABL Facility on a first-lien priority basis), the DIP Facilities do not effectuate any priming of the Prepetition ABL Secured Parties’ liens on the collateral under the Prepetition ABL Facility. 

Obtaining an immediate injection of cash is absolutely critical to the Debtors remaining a going concern. First, the Debtors file these chapter 11 cases a mere three days before approximately $40 million in October rent obligations that must be paid pursuant to the Bankruptcy Code come due. Second, the funding contemplated to be provided pursuant to the Critical Vendors Order, on the terms contemplated therein, is critical to ensuring the Debtors do not experience a supply chain disruption less than six weeks from the start of a busy holiday season. Third, the immediate liquidity made available by the DIP Facilities on an interim basis will, when combined with the anticipated cost savings from store closures, and revenues from store closing sales related to the Debtors’ store fleet optimization, put the Debtors on the first steps to a turnaround.

The Debtors require immediate access to liquidity to ensure that they are able to continue operating during these Cases and preserve the value of their estates for the benefit of all parties in interest. As of the Petition Date, the Debtors’ have a total cash balance of approximately $19.4 million and effectively no availability under the Prepetition ABL Facility. In other words, the Debtors have insufficient cash to operate their enterprise and continue paying their debts as they come due. Without prompt postpetition financing and access to Cash Collateral, the Debtors will be unable to pay wages for their employees, rent to their landlords, preserve and maximize the value of their estates, and administer these Cases, causing immediate and irreparable harm to the value of the Debtors’ estates to the detriment of all stakeholders.”

Pre-Petition Debt

As of the Petition Date, the Debtors’ capital structure consisted of outstanding funded-debt obligations in the aggregate principal amount of approximately $227.7 million, including the Prepetition ABL Facility, the Term Loan Agreements, and the Praxton Agreement.

The following table summarizes the Debtors’ outstanding funded-debt obligations as of the Petition Date:

The Debtors also have approximately $350.0mn in unsecured trade debt.

Key Terms of the DIP ABL Facility

• Borrowers: Forever 21, Inc., Forever 21 Retail, Inc., Forever 21 International Holdings, Inc., Alameda Holdings, LLC, Forever 21 Logistics, LLC, Forever 21 Real Estate Holdings, LLC, Riley Rose, LLC 
• Lenders: JPMorgan Chase Bank, N.A., HSBC Bank USA, N.A., Barclays Bank PLC, Citibank, N.A., MUFG Union Bank, N.A., Royal Bank of Canada, SunTrust Bank 
• Commitment: Aggregate Revolving Commitments of $275.0mn including letter of credit sublimit of $75.0mn.
• Interest Rates: The Obligations shall bear interest as follows: (a) Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the ABR plus the Applicable Rate for ABR Borrowings (2.25%); (b) Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate for Eurodollar Borrowings (3.25%); and (c) each Protective Advance made to the Borrowers shall bear interest at the ABR plus the Applicable Rate for ABR Borrowings (2.25%) plus 2%. 
• Default Rates: During the occurrence and continuance of an Event of Default, the Administrative Agent or the Required Lenders may declare that (i) all Loans shall bear interest at 2% plus the rate otherwise applicable to such Loans as provided in the preceding paragraphs of Section 2.13 of the DIP ABL Agreement or (ii) in the case of any other amount outstanding thereunder, such amount shall accrue at 2% plus the rate applicable to such fee or other obligation as provided thereunder.
• Fees: 
  • Commitment Fee: 0.50% per annum on the average daily amount of such Lender’s Applicable Percentage of the Unused Commitment.
  • Fronting Fee: 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements)

The Borrowers, jointly and severally, agree to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrowers and the Administrative Agent.

Key Terms of the DIP Term Loan Facility

• Borrowers: Forever 21, Inc., Forever 21 Retail, Inc., Forever 21 International Holdings, Inc., Alameda Holdings, LLC, Forever 21 Logistics, LLC, Forever 21 Real Estate Holdings, LLC, Riley Rose, LLC
• Lenders: TPG Sixth Street Partners, LLC, and/or its affiliated funds, related funds and investment vehicles.
• Commitment: Aggregate commitments of $75.0mn.
• Interest Rates: The obligations shall bear interest as follows: (a) Loans comprising each ABR Borrowing shall bear interest at the ABR plus 11.0%; (b) Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBOR Rate for the Interest Period in effect for such Borrowing plus 12.0%; and (c) each Protective Advance made to the Borrowers shall bear interest at the ABR plus 11.0%, plus 2%.
• Default Rates: During the occurrence and continuance of an Event of Default, the Administrative Agent or the Required Lenders may declare that (i) all Loans shall bear interest at 2% plus the rate otherwise applicable to such Loans as provided in the preceding paragraph and (ii) in the case of any other amount outstanding under the DIP Term Loan Agreement, such amount shall accrue at 2% plus the rate applicable to such fee or other obligation as provided thereunder.
• Fees: As and when due and payable under the terms of the Fee Letter, the Borrowers shall pay the fees set forth in the Fee Letter.

The Court scheduled a final DIP hearing for October 28, 2019.

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