October 31, 2019 – Further to an October 31st sale hearing, the $271.4mn sale of substantially all of the Debtors' assets to stalking horse ABG-Barneys, LLC ("ABG-Barneys") has been approved. ABG-Barneys is an acquisition vehicle created by Authentic Brands Group ("ABG") which owns over 50 brands including Nine West, Nautica and Hickey Freeman.
A sale order has yet to be issued (expected the morning of November 1st) and media reports suggest that there still remain several hours for a rival bid to emerge. This would appear to be wishful thinking for creditors (and shoppers) hoping to see a going concern bid materialize; and the much rumored bid of a consortium of investors led by Sam Ben-Avraham, the co-founder of the streetwear brand Kith, has had considerable time to make a heroic entrance. The Debtors have done much to stir this pot with a spokeswoman on record yesterday as pointing out that the sale isn’t final until it closes, one of multiple times that the Debtors have intimated that further bids might appear; this juxtaposed with the Debtors' choice of ABG-Barneys as stalking horse (and the machinations of debtor-in-possession ("DIP") lenders with a vested interest in shuttering Barneys, although initially woo-ing the Debtors with promises of going concern support), notwithstanding that ABG is widely understood to be interested in little more than the Debtors' intellectual property and likely to begin shutting stores as soon as the ink is dry on the November 1st order.
This contradictory approach is largely explained by the fact that the Debtors are under considerable pressure from their DIP lenders (set to be rewarded with handsome fees) to get a sale done and have the DIP financing (plus fees) repaid. One of those DIP lenders, B. Riley Financial, is party to the ABG-Barneys asset purchase agreement, and is to serve as agent/consultant in planned store closing and liquidation sales in respect of unwanted assets. Clearly more fees on the table there as well.
For the Debtors, the cold calculations of the DIP lenders has come as something of a difficult lesson. In August, the Debtors jettisoned their first DIP financing deal ($75.0mn to be provided by Gordon Brothers and Hilco Global) and heralded the arrival of something which appeared much better and promised a going concern future; the Debtors announcing in press release "that the Company has secured approximately $218 million in new financing from Brigade Capital Management, LP ('Brigade Capital') and B. Riley Financial, Inc. (NASDAQ:RILY) ('B. Riley Financial') to facilitate a going concern sale process. This new agreement, which materialized earlier in the day, replaces the previously announced $75 million agreement with affiliates of Hilco Global and the Gordon Brothers Group and will refinance all of Barneys New York's existing secured indebtedness. The Court granted Barneys New York interim approval to immediately access $75 million of the $218 million in new financing from Brigade Capital and B. Riley Financial, which, combined with operating cash flow, will help Barneys New York to meet its go-forward financial commitments and continue operations."
Further Background
The existence of at least one further serious bidder was noted in an October 10th filing, in which the Debtors accused their DIP lenders of trying to destabilize the Debtors' cases just as the Debtors were completing their search for a stalking horse bidder; a process then "reaching its conclusion with multiple bidders." As we noted then. "the choice of ABG-Barneys undoubtedly conveys the Debtors' own preferences as to the future of the Debtors' assets; an important consideration as the relative value of competing bids is presented by the Debtors to the Court for consideration (and as competing bids considers ABG-Barneys' apparent home court advantage). The accelerated auction and sale process (auction by October 24th and sale hearing by October 31st) suggest that the field of potential bidders is already well known to the Debtors who are under considerable pressure from their DIP lenders (to be rewarded with handsome fees) to get a sale done and have the DIP financing (plus) repaid. One of the Debtors' DIP lenders, B. Riley Financial, is party to the ABG-Barneys asset purchase agreement, and is to serve as agent/consultant in planned store closing and liquidation sales in respect of unwanted assets."
Key Terms of the ABG-Barneys Asset Purchase Agreement
- Purchaser: ABG-Barneys, LLC
- Acquired Assets: Substantially all of the Debtors’ assets, subject to certain exclusions set forth in the Stalking Horse Purchase Agreement.
- Purchase Price: Estimated to be approximately $271,400,000 in cash. Purchase price is equal to the sum of the DIP Obligations, the Wind Down Amount, the Prepaid Expenses Amount, the Seller Proration Amount, minus the Buyer Proration Amount, the Post-Closing Royalty Payment Amount, the Pre-Closing Royalty Payment Amount, and the Pre-Closing, Proceeds Credit.
- Wind Down Amount: $27,000,000, to be advanced by B. Riley from time to time pursuant to the Wind Down Budget.
- Bid Protections: A break-up fee of $8,142,000 (three percent of the Purchase Price) and an expense reimbursement fee of $1.5mn.
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