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Dean & DeLuca New York, Inc. – Iconic New York Culinary Brand, Largely Shuttered Since 2019, Files Chapter 11 as Globalization Strategy Fails and Consumer Preferences Change


March 31, 2020 – Dean & DeLuca New York, Inc. and six affiliated Debtors (“Dean & DeLuca” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-10916. The Debtors, a multi-channel retailer of premium gourmet and delicatessen food and beverage products, are represented by William R. Baldiga of Brown Rudnick LLP. Further board-authorized engagements include (i) Argus Management Corporation as financial advisors and to furnish the services of Lawton Bloom and Joseph Baum as Co-Chief Restructuring Officers and (ii) Stretto as claims agent. 

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) 33 Ninth Retail Owner LLC ($21.5mn rent debt), (ii) Slg Graybar Mesne Lease LLC ($9.1mn rent debt) and (iii) Internal Revenue Service Center ($2.2mn tax debt).

The Debtors are owned by an affiliate of Thai property developer Pace Development Corporation ("Pace") which purchased the Debtors for $140.0mn in September 2014. 

In mid-2019, however, the Debtors largely shuttered their New York operations with very little comment from Pace. A July 2019 New York Times article (one of many in the NYT covering the painful demise of a New York culinary institution) noted: "Since it was bought by Pace Development in 2014, Dean & DeLuca has developed all the signs of a company with debt problems: It pulled out of lease agreements; promised and revoked sponsorships; closed its stores in North Carolina, Kansas and Maryland; and has consistently withheld payment from vendors, who are increasingly vocal in their outrage. Small vendors in New York City alone said they are owed hundreds of thousands of dollars. Bien Cuit, a bakery in Brooklyn known for its burnished croissants: $56,000. Colson Patisserie, purveyor of French macarons and other sweets: $24,000. Amy’s Bread, which allowed the company to stock its famous layer cakes: $51,000.

'It stings because so many of us bakers grew up alongside Dean & DeLuca,” said Eleni Gianopulos of Eleni’s Cookies, who sued the company last year for $86,000 and ultimately settled for 50 cents on the dollar: an overall loss. Dean & DeLuca carved its niche with artisanal food products like hers, she said, and now the creators are treated as disposable.

'Getting your product into their store was an honor, like a golden ticket, and now it’s a nightmare.” 

Goals of the Chapter 11 Filings

The Baum Declaration (defined below) states: "To enable the Debtors to operate effectively and preserve estate value as it works toward its goal of entering into  a reorganization transaction for the benefit of its creditors and shareholders…;" the shareholders clearly being Pace and the creditors also prominently featuring Pace, which lent the Debtors $250.0mn "to fund the Debtors’ operations and failed expansion efforts." In some parts of the Baum Declaration, the math does not seem to add up with that Declaration noting $275.0mn of unsecured debt with $250.0mn owed to Pace, $45.0mn owed to Siam Commercial Bank Public Company Limited (“SCB”) and $25.0mn owed to landlords.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Baum Declaration”), Joseph Baum, the Debtors' recently engaged Co-Chief Restructuring Officer detailed the events leading to the Debtors' Chapter 11 filing. The Baum Declaration largely omits detail as to the Debtors' operational issues and frames the Debtors' bankruptcy in terms ill-fated efforts to globalize the Dean & Deluca brand and Pace's ultimate decision to pull the financing plug.

In a July 2019 press release announcing an operational restructuring, however, Sorapoj Techakraisri, Pace’s Chief Executive Officer, does touch on some of the operational issues faced by the Debtors' U.S. operations: “The world’s retail market including North America’s has changed swiftly over the past 4-5 years. Prepared foods have been offered on shelves in many grocery stores and some establishments [are] now providing dine-in options. While online shopping for Americans has increased 30 percent, [requiring] Brick and Mortar stores to adjust their business strategies to fit with the ever-changing consumer behaviors.”

The Baum Declaration states: "Following its acquisition by Pace in 2014, Dean & DeLuca suffered significant operating losses and experienced a liquidity shortfall. 

Pace Development Corporation loaned to the Debtors cash exceeding $200 million dollars to finance Dean & DeLuca's opening of dozens of new stores and executing licensing agreements for the expansion, promotion and development of the brand. At its height, Dean & DeLuca operated or licensed retail outlets across much of the globe, as well as an e-commerce platform, with plans to open hundreds of additional outlets. To execute its plans, Dean & DeLuca developed a global supply chain, including an exclusive range of private label and branded retail products.

Dean & DeLuca ceased operations in mid-2019 following a liquidity crisis that impeded execution of its expansion strategy. As of the Petition Date, all of the retail outlets owned by the Debtors and their affiliates have closed and all real estate lease agreements have been terminated.

As early as 2017, the Debtors had actively engaged in efforts to right-size their expenses and reorganize their operations. Despite best efforts, by mid-2019, Dean & DeLuca had run out of cash, and Pace was not able to offer sufficient additional loans to fund continuing losses. At that time, the Debtors shuttered all of their owned retail outlets and ceased direct retail operations." 

About the Debtors

Dean & DeLuca is a multi-channel retailer of premium gourmet and delicatessen food and beverage products under the Dean & DeLuca brand name. It traces its roots to the opening of the first Dean & DeLuca store in the Soho district of Manhattan, New York City by Joel Dean and Giorgio DeLuca in 1977. Debtor Dean & DeLuca, Inc. was incorporated in Delaware in 1999 and is the 100% owner, directly or indirectly, of each other Debtor. 

On September 29, 2014, Pace Development Corporation, through its wholly owned subsidiary, Pace Food Retail Co., Ltd. (together, “Pace”), acquired 100% of the shares of Dean & DeLuca, Inc. from its then shareholders.

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The post Dean & DeLuca New York, Inc. – Iconic New York Culinary Brand, Largely Shuttered Since 2019, Files Chapter 11 as Globalization Strategy Fails and Consumer Preferences Change appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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