February 2, 2020 – The Debtors notified the Court that they had selected SPARC Group F21, LLC (the “SPARC Group” or the "Stalking Horse Bidder," a consortium of Simon Property Group, Brookfield and Authentic Brands Group) as the stalking horse bidder in respect of a section 363 auction/sale process and attached an executed an executed version of the stalking horse asset purchase agreement to the notice [Docket No. 813]. The Stalking Horse APA notes a purchase price of $81.1mn and sets the break-up fee at $4.65mn. The Debtors also filed a blackline of the Stalking Horse APA noting changes from the substantially completed "form of" APA filed on January 30th [Docket No. 815]
Store Closings
The intentions of the SPARC Group remain uncertain, although this is likely to come further into focus at the Debtors' scheduled February 4th hearing. Between them, Simon Property Group and Brookfield Property are the lessors in respect of more than 180 of the Debtors' Leases. Authentic Brands Group ("ABG," 30% owned by BlackRock Inc.) owns more than 50 consumer brands and is clearly interested in the Debtors' intellectual property rights. In their "form of" APA, the Debtors/SPARC Group inadvertently left a footnote "Seller NTD: Buyer’s intentions to be discussed" as to going out of business ("GOB sales"). The Buyers, ie SPARC Group, are to be left with complete discretion as to further GOB sales, including the appointment of agents, and in any event are to be owners of the Debtors' assets no later than February 18th. In ABG's recent, and much criticized acquisition of Barney's, ABG partnered with B. Riley Financial Inc. ("BRF"), with ABG taking Barney's IP rights and BRF launching a lengthy store closing process to monetize its own interests. Will we see something similar here?
The Stalking Horse APA
Purchase Price: The consideration for the Acquired Assets shall be (i) an aggregate Dollar amount equal to the sum of $81,100,000 (the “Purchase Price”), (ii) performance of the obligations set forth in Section 2.6, and (iii) Buyer’s assumption of the Assumed Liabilities and payment of the Additional Administrative Costs. For the avoidance of doubt, the Purchase Price is inclusive of the Wind Down Amount and Buyer shall have no obligation with respect thereto.
Bidder Protections
- Break-up Fee: $4.65mn (i.e. an amount equal to 3.0% of (i) the Purchase Price plus (ii) the aggregate value of the Standby Letters of Credit)
- Expense Reimbursement: $1.0mn
- Overbid Increment: $1.0mn
Milestones
- Entry of Bidding Procedures Order Deadline: February,7, 2020.
- Auction Deadline: February,12, 2020
- Sale Hearing Deadline: February 13, 2020
- Sale Order Deadline: February 18, 2020
Marketing Efforts
The Debtors first bidding procedures motion [Docket No. 802] provided: "Simply put, the Debtors have conducted a robust marketing process for their assets over the past several months. The Debtors contacted more than 115 parties soliciting proposals to recapitalize the Debtors and otherwise maximize recoveries for their creditors. Among other things, the Debtors have explored raising additional debt through a variety of structures, raising additional capital through an equity raise, and selling the Debtors’ assets. The DIP Lenders have agreed to provide the Debtors with certain runway to realize on those prior efforts. The proposed sale process will help drive these chapter 11 cases to a value-maximizing conclusion.
With the backing of its DIP Lenders and the Committee, the Debtors’ investment bank, Lazard Frères & Co. LLC ('Lazard'), launched an extensive marketing process in early November 2019. At that time, Lazard commenced a widespread outreach to potential bidders, including a broad universe of traditional banks, alternative investment firms, private equity firms, and strategic investors. Initially, Lazard contacted 80 potential lenders and investors; more than 50 such parties signed NDAs and received access to diligence materials. Following this initial outreach, Lazard identified 14 parties they believed most likely to provide exit financing. Lazard received 13 debt-financing proposals—six proposals to provide an exit ABL facility, and seven proposals to provide an exit term loan. Lazard also received two proposals that contemplated investments from new secured debt or new equity. Meanwhile, as described in the Forbearance Motion, the Debtors’ access to liquidity under the DIP Facilities came under pressure in mid-December. The Debtors and their advisors accelerated their engagement with parties in interest during this period and further expanded their outreach to find investors and buyers. In the aggregate, Lazard reached out to more than 115 potential investors."
About the Debtors
Founded in 1984, Forever 21, Inc., headquartered in Los Angeles, California, is a fast fashion retailer of women’s, men’s and kids clothing and accessories and is known for offering the hottest, most current fashion trends at a great value to consumers. Forever 21 delivers a curated assortment of new merchandise brought in daily.
As of the Petition Date, the Debtors operate 549 stores across the United States, and 251 stores are operated internationally by non-Debtor affiliates. Of the 251 international stores, 181 are owned and operated exclusively by the non-Debtor affiliates, 54 are franchises, and 16 are operated as joint ventures. The Debtors also maintain a substantial online presence, with their e-commerce platform accounting for approximately 16 percent of all sales. In addition to the 534 stores operated under the Forever 21 brand, the Debtors formed a beauty and wellness brand, Riley Rose, in 2017, which operates 15 stores in the United States.
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