March 9, 2020 – Bluestem Brands, Inc. and 17 affiliated Debtors (“Bluestem” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10566. The Debtors, a multi-brand, online retailer offering name-brand and private-label general merchandise through 7 retail brands (eg. Appleseed’s, Blair, Draper’s & Damon’s, Gettington, Fingerhut, Haband and Old Pueblo Traders) are represented by M. Blake Cleary of Young Conaway Stargatt & Taylor, LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisors and (iii) Raymond James & Associates, Inc. as investment banker and (iv) Prime Clerk as claims agent.
The Debtors’ lead petition notes more than 100,000 creditors; estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $500.0mn and $1.0bn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) UPS ($6.2mn trade claim), (ii) Tech Mahindra Ltd ($2.2mn trade claim) and (iii) Pro Star Logistics ($2.0mn trade claim).
In a press release announcing the filing, the Debtors advised that: "Bluestem intends to use the reorganization process to implement a value-maximizing transaction that deleverages its balance sheet and positions the company for long-term success. Bluestem Brands, Inc. is a wholly owned subsidiary of Bluestem Group, Inc. (OTCMKTS: BGRP), which is not part of the Chapter 11 filing.
Bruce Cazenave, Bluestem's chief executive officer, added, “We are using Chapter 11 to maximize the value of our business and have entered into a stalking horse purchase agreement with a syndicate of term-loan lenders, which provides us with a clear path to strengthen our business for continued success. The stalking horse bid is a baseline against which we will seek higher or otherwise better outcomes for the benefit of all of our stakeholders.”
DIP Financing
The Debtors also announced that they had secured $125.0mn of debtor-in-possession ("DIP") to be comprised of $100.0mn of DIP ABL loans, subject to borrowing base availability, and $25.0mn of DIP term loans.
Prepetition Indebtedness
|
Funded Debt |
Agent |
Maturity |
Amount Outstanding |
|
Prepetition Term Loan $580 million |
Cerberus Business Finance, LLC as administrative agent |
November 7, 2020 |
$416.3 million |
|
Prepetition ABL Facility $200 million |
Cerberus Business Finance, LLC as administrative agent |
July 10, 2020 |
$43.9 million |
|
Total Outstanding Funded Debt: |
|
|
$460.2 million |
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Declaration”) [Docket No. 16], Thomas L. Fairfield, one of the Debtors' directors (appointed January 2020, but previously serving in a number of Capmark roles), detailed the events leading to Bluestem's Chapter 11 filing.
The Declaration points the finger at "macro-trends and certain operational shortfalls," insisting that the Debtors' slide into bankruptcy "is not remarkable." Except that unlike most of the retailers that have recently made bankruptcy so unremarkable, Bluestem is an online retailer; normally cited as the source of macro-trend distress and not the recipient of it. For these online Debtors, it is Walmart and Amazon, and the increasing willingness of these competitors to offer more flexible credit to the Debtors' traditional "low- to middle-income consumers" while the Debtors were themselves tightening up credit terms, from which unsustainable competitive pressure has emanated. Also clearly stretching the Debtors' ability to take on Walmart and Amazon as they slid into a poor 2019 holiday season was their "inability to negotiate consumer delivery arrangements" that could compete with free shipping offered by those competitors. Unsurprisingly perhaps, delivery companies feature prominently in the Debtors' list of top unsecured creditors.
The Declaration states: "Unfortunately, like virtually every other retail and apparel-focused company, Bluestem has suffered from adverse macro-trends and certain operational shortfalls, including increased competition from retailers like Walmart and Amazon and weaker-than-expected sales during the 2019 holiday season. As a result of these challenges, since late 2019, the Debtors have been unable to generate the liquidity necessary to service outstanding debt obligations and operate their businesses. In this respect, Bluestem is not remarkable.
With respect to the Northstar Portfolio, the Debtors’ declining revenues have resulted from (i) increased competition from flexible payment plans and credit offered by storefront and online sellers, including Walmart and Amazon; (ii) narrowing of the potential customer pool due to an internal shift to lower risk profile customers; (iii) increased focus by comparison shoppers on the total cost of products rather than monthly payments; and (iv) the Debtors’ inability to negotiate consumer delivery arrangements that are competitive with the free shipping deals offered by some of their largest competitors. With respect to the Orchard Portfolio, the decline in revenues is driven largely by a decrease in the number of active customers.
In addition, over the 2019 holiday season, the Debtors experienced significantly weaker-than-expected sales. Like many retail businesses, the Debtors’ businesses are highly seasonal. And though the Debtors received substantial revenue from consumer sales over the recent holidays, it was less than the Debtors had projected. The weak holiday period exacerbated the Debtors’ liquidity issues."
About the Debtors
Bluestem Brands, Inc., a wholly owned subsidiary of Bluestem Group, Inc. (OTCMKTS: BGRP) Bluestem Group Inc., is a multi-brand, online retailer of a broad selection of name-brand and private-label general merchandise serving low- to middle-income consumers through 7 retail brands that include: Appleseed’s, Blair, Draper’s & Damon’s, Gettington, Fingerhut, Haband and Old Pueblo Traders. Complementing each brand is a large selection of merchandise with payment options that provide customers with the flexibility of paying over time. Bluestem Group is headquartered in Eden Prairie, MN.
On June 17, 2015, Capmark Financial Group Inc. changed its name to Bluestem Group Inc. Shares trade on the OTC marketplace under the symbol BGRP.
Corporate Structure Chart
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