October 10, 2019 – The Debtors have responded to a proposed order filed with the Court by their debtor-in-possession ("DIP") lenders in a dispute which had threatened to further destabilize the Debtors' cases just as the Debtors are completing their search for a stalking horse bidder, a process that the Debtors' are currently required to complete by October 11th. In their proposed revision of a final DIP financing order, the DIP lenders, BRF Finance Co. and Brigade Capital Management (together, the "DIP Lenders"), made several changes to the economic terms which they argue had been largely agreed in an October 3rd Court hearing. Those changes include the priority of a 2% consent fee vis-a-vis administrative and priority claims, a minimum deposit that would be required of any stalking horse bidder (the DIP Lenders insisting on 5% and the Debtors wanting it capped at $10.0mn) and the immediate payment of $4.0mn in back rent that had earlier been waived [Docket No. 317].
In their response, joined by their Official Committee of Unsecured Creditors (the "UCC"), the Debtors, clearly mindful of any dispute which would impact an auction process that they describe as "reaching its conclusion with multiple bidders," have now conceded the economic points raised by their DIP lenders (accepting the proposed changes as drafted). In acquiescing, the Debtors have asked the Court (and those DIP lenders) to accept a more blanket legal argument that the final order should not otherwise impinge on "the right to seek any necessary or appropriate relief at a hearing before this Court at any time, or this Court’s right to make decisions in these cases." It is not entirely clear that this right does not otherwise exist or that the proposed order precluded it; although the language, combined with intimations that there may be a lack of good faith on the part of the DIP Lenders (including the possibility that the DIP Lenders would push the Debtors into liquidation), is probably more than just an attempt at face saving.
The Debtors' "reply" to the proposed DIP order states, "The real reason behind the ‘brief’ submitted by the DIP Parties is to try to leverage and unnecessarily pressure up the situation so that the DIP Lenders can be in a position to force a liquidation if there is even the slightest of foot faults. The Debtors and the UCC, however, will not agree to or standby passively given the present level of actionable interest in this company and the shared goal of a going concern. While the Debtors dispute the DIP Parties’ one-sided, self-serving characterizations as to the agreed deal terms in respect of certain economic points, the Debtors are prepared to accept the DIP Parties’ economic terms to move the sale process forward. Importantly, however, the DIP Parties Proposed DIP Order still suffers from one fatal flaw: it does not preserve the Debtors’ and UCC’s rights, as fiduciaries, to seek any and all relief that is necessary or appropriate in furtherance of a value-maximizing transaction. Nor does it respect this Court’s authority to review matters and enter orders in connection therewith. And this, of course, is by design."
There had been some discussion as to what the Debtors' deadline was for entering into a stalking horse agreement. This point has also been conceded by the Debtors in their Reply which states: "The DIP Parties’ Proposed Order imposes a deadline of October 11, 2019, at 11:59 prevailing Eastern time, for the Debtors to enter into an acceptable stalking horse asset purchase agreement. Setting aside that there is a handshake to extend that date to October 14, 2019, that deadline may be extended in the DIP Parties’ ‘sole discretion.’ The Debtors can live with that deadline and consent right."
Update on the Debtors’ Marketing Process
The Debtors' Reply also suggests that an announcement as to a stalking horse may come "as early as" today (October 11th, although given that this is actually also the agreed deadline, that might equally read "as late as") when the parties are otherwise scheduled to meet. Regardless, clearly there is a frantic process underway; one that requires an auction to be held by October 24th. The Reply continues: “The Debtors commenced these chapter 11 cases to implement a going-concern restructuring transaction—a transaction that would keep thousands of people employed for this iconic retailer that is a leader in the fashion industry. The sale process—supported by the DIP Parties and approved by the Court—is reaching its conclusion with multiple bidders competing to be designated as the stalking horse bidder. The Debtors and their advisors are working around the clock to negotiate the terms of an acceptable form of asset purchase agreement that would, at a minimum, pay the DIP Parties in full. Announcement of the Debtors’ selection of a stalking horse bidder and entry into a stalking horse asset purchase agreement may come as early as Friday’s hearing. Assuming there is a stalking horse, the Debtors would then continue their efforts to develop market interest into actionable, qualified bids, submitted no later than October 22, from the multiple potential bidders that have not only expressed substantial interest in acquiring Barney’s, but have been conducting extensive diligence. All of this could form the basis of a competitive auction held on October 24, a mere 14 days from today. There is no question continuing on this path forward is the optimal way to maximize value for the Debtors’ estates and all parties in interest, including, among the many other stakeholders, the DIP Parties."
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