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Tailored Brands, Inc. – Judge Jones Led Mediation Leads to Consensus with Creditors’ Committee, Paves Way for Plan Confirmation at Friday the 13th Hearing

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November 12, 2020 – The Debtors have filed a flurry of Plan documents in advance of their November 13th Plan confirmation hearing which include, inter alia, (i) their memorandum of law in support of Plan confirmation (the "Memorandum") [Docket No. 1203], (ii) a proposed Plan confirmation order [Docket No. 1204], (iii) a Fourth Amended Plan Supplement [Docket No. 1201] and (iv) Plan voting results [Docket No. 1165]. 

Not filed, but expected shortly, is a Fifth Amended Plan which will incorporate "a consensus with the Creditors Committee…(as will be set forth in an amended Plan to be filed in advance of the Confirmation Hearing)."

That consensus may prove critical in respect of a Plan that has only two voting classes, one of which, Class 5(b) "Other General Unsecured Claims," followed the emphatic advice of the Debtors' Official Committee of Unsecured Creditors (the "Creditors' Committee") to reject the Plan. 

As discussed further below, the Creditors' Committee had objected to the Debtors' valuation efforts; with the Debtors' valuation leaving holders of 5(b) Other General Unsecured Claims claims a "3% tip" in place of up to 49% that the class would be entitled to, according to the Creditors' Committee, based on more competent valuation efforts. Also unacceptable to the Creditors' Committee, the disparate treatment between Other General Unsecured Claims and Class 5(a) “Moores General Unsecured Claims” set to receive a 100% recovery. We will have to wait for the amended Plan for exact details as to the consensus reached.

Also undoubtedly critical is the role of Judge Jones (part of the Southern District of Texas' reknowned Isgur/Jones duo) in helping the parties to reach the consensus of part of mediation role he undertook on behalf of Judge Isgur who is presiding over the Debtors' cases and is being asked to cram down the Other General Unsecured Claims. Given the role of Judge Jones and the consensus reached with the Creditors' Commitee, it would be very surprising if he didn't proceed with that cramdown.

Consensus with Committee

The Memorandum provides the following on last minute developments that will allow them to proceed to their (often delayed) November 13th Plan confirmation hearing with a degree of optimism: "The Debtors’ reorganization has been marked by consistent progress—and, ultimately, global consensus amongst key stakeholders—nearly every step of the way. Facing the unprecedented COVID-19 pandemic, the Debtors commenced these cases after securing the support of over 75 percent of their Term Loan Lenders and their ABL Lenders (and now, their anticipated exit lenders). Immediately thereafter, the Debtors turned their attention to building broad consensus with the rest of their stakeholder base, including the Creditors Committee. 

And now, with the invaluable mediation efforts of Judge Jones, the Debtors have consensus with the Creditors Committee as well (as will be set forth in an amended Plan to be filed in advance of the Confirmation Hearing). As a result, the Debtors stand poised to proceed with confirmation and emergence with consensus from all key stakeholders: their ABL Lenders, their Term Loan Lenders, and the Creditors Committee. Through the Plan, the Debtors will emerge as a leaner, well-capitalized company, having consummated a transformative restructuring in less than four months—no small or easy task for a retail company.

Voting Results

On November 10th, the Debtors' claims agent filed Plan voting results, which were as follows:

  • Class 4 (“Term Loan Secured Claims”): 290 claim holders, representing $399,221,640.75 in amount and 100% in number, accepted the Plan.
  • Class 5(b) (“Other General Unsecured Claims”): 547 claim holders, representing $285,515,957.26 (or 52.50%) in amount and 40.28% in number, accepted the Plan. 811 claim holders, representing $258,330,045.55 (or 47.50%) in amount and 59.72% in number, rejected the Plan.

Summary of Treatment of Voting Classes:

  • Class 4 (“Term Loan Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $558.3mn and expected recovery is 63.7%. Each Holder shall receive its Pro Rata share of and interest in (i) the Exit Term Loan Facility; and (ii) 100% of the New Equity (subject to dilution by the Management Incentive Plan) less the aggregate amount of New Equity distributed to Holders of Class 5(b) Claims that select (or are deemed to have selected) the Class 5(b) Equity Election.
  • Class 5(b) (“Other General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $722.7mn (including $318.8mn Term Loan Deficiency Claims), and expected recovery is 1.3%. Each Holder shall receive, at the option of each such Holder, either: (x) the Class 5(b) Equity Election or (y) the Class 5(b) Cash Election; provided, that Holders of Term Loan Deficiency Claims shall not be eligible to select the Class 5(b) Cash Election and shall receive the Class 5(b) Equity Election; provided, further, that if any Holder of a Class 5(b) Claim selects both the Class 5(b) Equity Election and the Class 5(b) Cash Election or fails to select either option, as of the applicable deadline, such Holder shall receive the Class 5(b) Equity Election; provided, further, that the aggregate amount paid to all Holders of Class 5(b) Claims that select the Class 5(b) Cash Election shall not exceed the Class 5(b) Cash Cap; provided, further, that, in the event the aggregate amount payable to Holders of Class 5(b) Claims that select the Class 5(b) Cash Election would otherwise exceed the Class 5(b) Cash Cap, such Cash that would have otherwise been distributed to Holders of Class 5(b) Claims pursuant to the Class 5(b) Cash Election shall be reduced on a Pro Rata basis and such Holder shall instead receive New Equity (subject to dilution by the Management Incentive Plan) with a value equal to twice the Pro Rata reduction of the Holder’s Class 5(b) Cash Election.
    • “Class 5(b) Cash Election” means the election available to each Holder of a Class 5(b) Claim to receive, other than Holders of Term Loan Deficiency Claims, to receive, on account of such Class 5(b) Claim and in full and final satisfaction of such Class 5(b) Claim, Cash in an amount equal to 50% of the value of the New Equity to which such Holder would have been entitled to receive had they selected the Class 5(b) Equity Election; provided, that the aggregate amount paid to all Holders of Class 5(b) Claims that select the Class 5(b) Cash Election shall not exceed the Class 5(b) Cash Cap; provided, further, that, in the event the aggregate amount payable to Holders of Class 5(b) Claims that select the Class 5(b) Cash Election would otherwise exceed the Class 5(b) Cash Cap, such Cash that would have otherwise been distributed to Holders of Class 5(b) Claims pursuant to the Class 5(b) Cash Election shall be reduced on a Pro Rata basis and such Holder shall instead receive New Equity (subject to dilution by the Management Incentive Plan) with a value equal to twice the Pro Rata reduction of the Holder’s Class 5(b) Cash Election.
    • “Class 5(b) Equity Election” means the election available to each Holder of a Class 5(b) Claim to receive, on account of such Class 5(b) Claim, its Pro Rata share of and interest in 3% of the New Equity (subject to dilution by the Management Incentive Plan); provided, that each Holder’s share of New Equity (subject to dilution by the Management Incentive Plan) shall be equal to the product of 3% and the Class 5(b) Claims held by such Holder as a percentage of the total Class 5(b) Claims; provided, further, that, for the avoidance of doubt, (i) the amount of New Equity to which each Holder that selects the Class 5(b) Equity Election shall be entitled shall not be increased or reduced by the number of Holders of Class 5(b) Claims that select the Class 5(b) Cash Election, and (ii) any portion of the aggregate 3% New Equity which was designated for Class 5(b) that was not utilized (as a result of the Class 5(b) Cash Election) shall revert to the Holders of Term Loan Secured Claims.

Committee Objection

[As previously reported] The Debtors' Second Amended Plan, filed on October 8th, included some significant amendments including in respect of financial projections and valuation. There are were also some clarifications as to class sizes and treatments with the Debtors going to considerable lengths to explain why Moores general unsecured creditors fare better than others (100% recovery vs 1.3% recovery)

Valuation continues to be a point of contention, as do releases, with the Debtors acceding to pressure from the Creditors' Committee to add a health warning at the beginning of the Disclosure Statement, include a letter from the Committee with their Plan solicitation materials and include the following summary of the Creditors' Committee's position in the Disclosure Statement: "The Creditors' Committee has conducted an independent valuation of the Debtors’ assets and its expert has determined that the Debtors’ Plan vastly understates the value of the Debtors’ assets and impermissibly undercompensates the Holders of General Unsecured Claims. The Debtors believe that the Committee’s valuation is based wholly on flawed assumptions and misleading conclusions."

The Creditors' Committee Letter, which insists that with a more competent valuation "general unsecured creditors would be entitled to approximately 49% of the Debtors’ reorganized equity – as opposed to the 3% 'tip' proposed under the Plan" is attached to the Creditors' Committee objection at Docket No. 761.

In an objection to the Fourth Amended Plan filed on November 6, 2020 [Docket No. 1113], the Creditors' Committee reiterated its argument in respect of valuation. The objection stated, "The Plan proposed in these chapter 11 cases cannot be confirmed because it is based on a flawed and artificially depressed enterprise valuation that results in the Term Lenders receiving more than the amount of their secured claims at the expense of general unsecured creditors. At the Debtors’ suggested enterprise value of $850 million, the Plan provides that the Term Loan Lenders will receive 97% of the reorganized equity and class 5(b) general unsecured creditors (including the Term Loan Lenders’ purported deficiency claim) will receive the remaining 3% – each subject to dilution by a Management Incentive Plan ('MIP'). Given the Debtors’ depressed valuation and resulting Term Loan Lender deficiency claim – purportedly $318.8 million – a 3% distribution on approximately $430 million in total general unsecured claims amounts to a 1.5% equity distribution to non-Term Loan Lenders class 5(b) general unsecured claims. Thus, the Plan’s equity split essentially provides $2.8 million in equity value to general unsecured creditors or less than a 1% recovery.

Based upon the valuation undertaken by The Michel Shaked Group ('MSG'), the Committee’s valuation expert, however, the Debtors’ total enterprise valuation upon emergence from bankruptcy is $1.498 billion. Using this valuation, Class 5(b) general unsecured creditors are entitled to 38% of the equity of the Reorganized Debtors….

In addition, the Plan proposed by Tailored Brands Worldwide Purchasing Co. ('WPC'), a Debtor entity that is not obligated under the ABL Facility or the Term Loan Lender Claims, cannot be confirmed because the Plan provides general unsecured creditors of WPC less than they would receive under chapter 7. Accordingly, the Plan, as it relates to WPC general unsecured creditors, fails to meet the best interest of creditors test under Section 1129(a)(7). Moreover, there is no class of impaired claims that will have accepted the WPC Plan and Section 1129(a)(10) cannot be satisfied."

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The post Tailored Brands, Inc. – Judge Jones Led Mediation Leads to Consensus with Creditors’ Committee, Paves Way for Plan Confirmation at Friday the 13th Hearing appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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