December 31, 2020 – The Debtors notified the Court that their Revised Second Amended Plan of Reorganization had become effective as of December 31, 2020 [Docket No. 1938]. The Court had previously confirmed the Debtors’ Plan on December 23, 2020 [Docket No. 1913].
On May 27, 2020, Tuesday Morning Corporation and six affiliated Debtors (formerly Nasdaq “TUES” and currently OTC "TUESQ;" “TMC” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 20-31476. At filing, the Debtors, “off-price retailers”, noted estimated assets of $92.0mn and estimated liabilities of $88.35mn.
The Debtors were represented by (i) Haynes & Boone LLP as local bankruptcy counsel, (ii) AlixPartners LLP as financial advisors, (iii) Miller Buckfire as investment banker, (iv) A&G Realty Partners, LLC as real estate advisor, (v) A&G Realty Partners, LLC as liquidation advisor and (vi) Epiq Corporate Restructuring, LLC as claims agent.
Deadlines of February 1, 2021 and February 15, 2021 have been set for administrative claims and professional fee claims, respectively.
In a December 23, 2020 press release (also 8-K here) noting the Plan's confirmation, the Debtors stated: “Under the terms of the Plan, the capital structure of the reorganized company is expected to consist of a $110 million asset-backed lending credit facility which will provide working capital and $25 million in principal amount of a new senior subordinated note. Additionally, approximately $40 million in cash proceeds from an upcoming backstopped rights offering will be applied to pay creditors under the Plan.”
Plan Overview
The Disclosure Statement [Docket No. 1634] notes, “The Plan provides for the resolution of Claims against and Interests in the Debtors and implements a distribution scheme pursuant to the Bankruptcy Code. Distributions under the Plan shall be made with: (1) Cash on hand, including Cash from operations; (2) the New ABL Credit Facility; (3) the proceeds of the Sale Leaseback; (4) the issuance of the Senior Subordinated Notes; and (5) the exchange of each share of the Existing Common Stock for (a) one share of the New Common Stock and (b) an Eligible Offeree Share Purchase Right as described herein, as applicable.”
The Disclosure Statement continues: “The following is a nonexclusive list of certain key terms in the Plan:
- Payment in full (100%) of secured, administrative and priority claims;
- Payment in full (100%) plus interest in cash to all holders of Class 5 General Unsecured Claims;
- Conversion of Interests in Tuesday Morning into New Common Stock subject to dilution by the Rights Offerings and Management Incentive Plan.
The sources of funding for the Plan include:
- Cash on hand from operations;
- Projected sale proceeds of approximately $60 million from the Sale Leaseback of the Debtors’ owned real property;
- $25 million in proceeds from the Debtors’ issuance of the Senior Subordinated Notes to the Senior Subordinated Noteholders; and
- Projected proceeds of a $40 million Rights Offerings, which is fully backstopped by the Backstop Parties.
- Eligible Offerees (any holder of Existing Common Stock as of the Rights Offering Record Date) will be eligible to participate in the Eligible Rights Offering Common Stock for an aggregate purchase price of up to $24,000,000, with the remaining $16,000,000 reserved for the Backstop Parties.
Upon emergence from bankruptcy, the Reorganized Debtors will have access to a $110 million senior secured New ABL Credit Facility offered by the Debtors’ DIP Revolving Facility Lenders. If the Plan is approved, the Reorganized Debtors will emerge from bankruptcy as reorganized, well-capitalized entities able to continue conducting business with their key merchandise partners, continue to employ thousands of employees and continue as tenant to hundreds of landlords.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement, see also the liquidation analysis below):
- Class 1 (“Other Priority Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0 and expected recovery is 100%.
- Class 2 (“Other Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $200k and expected recovery is 100%. Each holder of an Other Secured Claim shall receive: (i) Payment in full in Cash; (ii) The collateral securing its Class 2 Claim; provided, however, any collateral remaining after satisfaction of such Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Reinstatement of its Class 2 Claim.
- Class 3 (“Secured Tax Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0 (Tax claims are generally being paid in the ordinary course of business) and expected recovery is 100%. Each holder shall receive: (i) Payment in full in Cash; (ii) the collateral securing its Claim; provided, however, any collateral remaining after satisfaction of such Class 3 Claim shall revest in the applicable Reorganized Debtor; or (iii) Such other treatment consistent with the requirements of Bankruptcy Code.
- Class 4 (“Existing First Lien Credit Facility Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $100k and expected recovery is 100%. Each holder shall receive Payment in Full, in Cash, plus any and all fees, interest (both pre and post-Petition date) and reimbursement of expenses and any other amounts owed or arising under the Existing First Lien Credit Documents through the time of Payment in Full, in three equal installments to be paid on the 30th, 60th and 90th days after the Effective Date (each a “Payment Date”). All liens and security interests granted to secure such Existing First Lien Credit Facility Claims shall be retained until such payments shall have been made. Further, in the event that the Existing First Lien Agent is the agent for the New ABL Credit Facility, it shall retain the liens and security interests securing the Existing First Lien Credit Facility Claims after such payments are made and have such liens and security interests secure the New ABL Credit Facility.
- Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $125.0mn and expected recovery is 100%. Each holder of a Class 5 Claim shall receive its Pro Rata share of (i) the General Unsecured Cash Fund with interest from the Petition Date through the payment date at the federal judgment rate in effect as of the Petition Date. The initial amount of the General Unsecured Cash Fund shall be $86.3mnn and shall include, without limitation, the proceeds of the Sale Leaseback and the Senior Subordinated Notes (less the payment of applicable transaction costs and related closing costs) which shall be transferred immediately to the General Unsecured Cash Fund upon the earlier to occur of (a) the receipt of such proceeds or (b) upon the establishment of the escrow account or trust account. The proceeds of the Rights Offerings (which proceeds shall be received at completion of the Rights Offerings as described in Article IV.E.4 of the Plan) shall be transferred immediately upon receipt to the General Unsecured Cash Fund. The amount of the General Unsecured Cash Fund will be increased as necessary to ensure that the total amount of the General Unsecured Cash Fund is sufficient to satisfy all Allowed General Unsecured Claims in full with interest from the Petition Date through the payment date at the federal judgment rate in effect as of the Petition Date. For the avoidance of doubt, the reference in the Plan to “payment in full” or “paid in full” with respect to a Class 5 General Unsecured Claim shall mean the payment of 100% of the face amount of the Allowed General Unsecured Claim plus interest from the Petition Date through the payment date at the federal judgment rate in effect as of the Petition Date
- Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Class 6 Claims shall be, at the option of the Debtors, either Reinstated or cancelled and released without any distribution.
- Class 7 (“Tuesday Morning Interests”) is impaired and entitled to vote on the Plan. Each outstanding share of the Existing Common Stock shall remain outstanding. On the Rights Offering Distribution Date, each share of the Existing Common Stock outstanding on the Rights Offering Record Date shall be exchanged for (1) one share of the New Common Stock and (2) a Share Purchase Right entitling the holder to purchase a pro rata portion of the Eligible Holders Rights Offering Common Stock. On the Effective Date, Tuesday Morning Corporation Interests consisting of options, warrants or other rights, contractual or otherwise, to acquire shares of the Existing Common Stock shall be reinstated and entitle the holder to acquire an equal number of shares of the common stock of Reorganized Tuesday Morning, subject to dilution as a result of the issuance of the Rights Offering Common Stock and the issuance of equity securities on and after the Effective Date pursuant to the Management Incentive Plan.
- Class 8 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
Voting Results
On December 21, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 1870], which were as follows:
- Class 1 (“Other Priority Unsecured Claims”) 11 claim holders, representing $349,049.40 (97.55%) in amount and 84.62% in number, voted in favor of the Plan. 2 claim holders, representing $8,775.74 (2.45%) in amount and 15.38% in number, rejected the Plan.
- Class 2 (“Other Secured Claims”) 2 claim holders, representing $173,652.85 (99.999%) in amount and 66.67% in number, voted in favor of the Plan. 1 claim holder, representing $1.00 (0.001%) in amount and 33.33% in number, rejected the Plan.
- Class 3 (“Secured Tax Claims”) 1 claim holder, representing $1,350.01 (100%) in amount and 100% in number, voted in favor of the Plan.
- Class 4 (“Existing First Lien Credit Facility Claims”) 2 claim holders, representing $77,778.00 (100%) in amount and 100% in number, voted in favor of the Plan.
- Class 5 (“General Unsecured Claims Tuesday Morning Corporation”) 214 claim holders, representing $37,652,924.56 (99.93%) in amount and 1.83% in number, voted in favor of the Plan. 4 claim holders, representing $24,783.38 (0.07%) in amount and 1.83% in number, rejected the Plan.
- Class 7 (“Tuesday Morning Corporation Interests”) Claim holders representing 23,772,587.000 (98.36%) in amount and 1.64% in number, voted in favor of the Plan. Claim holders representing 396,405.000 (1.64%) in amount, rejected the Plan.
Petition Date Perspective
In a press release announcing the filing, TMC advised that “it will pursue financial and operational reorganization designed to allow the Company to reduce its outstanding liabilities and strengthen its overall financial position. These actions are in response to the immense strain the COVID-19 pandemic and related store closures have put on the business."
Petition Date Highlights
- COVID-19 store closures led to loan agreement defaults, dramatic cutback in borrowing headroom
- Prepetition lenders to extend $100.0mn of DIP financing if Debtors source $25.0mn of additional financing
- Debtors will begin closing 230 stores in "footprint realignment"
- Debtors will "attempt" to renegotiate leases
Realignment of Store & Distribution Footprint (aka Store Closings and Lease Renegotiations)
The press release adds that the reorganization process will enable TMC "to realign its store footprint" and that it "expects to close approximately 230 of its 687 stores" over the course of the summer and to leave a go-forward footprint of approximately 450 stores. The Debtors will seek Court authority to close "at least 132 locations in a first phase and, eventually, the Company’s distribution center in Phoenix that supports these stores."
The Debtors also plan "to attempt to renegotiate a significant number of leases during this process."
DIP Financing
On June 26, 2020, the Court hearing the Tuesday Morning Corporation cases issued a final order authorizing the Debtors to access the $50.0mn balance of a $100.0mn debtor-in-possession (“DIP”) financing facility provided by certain prepetition RBL lenders (the “Revolving Credit Facility”) [Docket No. 331]. In a May 26th interim DIP financing order, the Court had previously allowed access to $50.0mn of the Revolving Credit Facility [Docket No. 67]. The agreed DIP financing included a gradual paydown (ie "roll-up") of prepetition debt with collected revenue; the Debtors left to relying on advances under the DIP facility to fund their operations.
On July 10, 2020, the Court hearing the Tuesday Morning Corporation cases issued a final order authorizing the Debtors to access a further $25.0mn of debtor-in-possession (“DIP”) financing to be provided by Franchise Group, Inc. (“FGI”). This was something of a wild ride, with the Debtors twice switching providers of this additional DIP financing; for a month slated to be provided by B. Riley Financial ("BRF," a wholly owned subsidiary of B. Riley Financial, Inc. or "B. Riley") and then briefly by SF V CLE Lending, LLC (“SF V”)…and thats before we factor in that this has been from the outset financing supplemental to the Debtors' "Initial DIP Financing" of $50.0mn.
By way of reminder, the Debtors' ability to obtain at least $20.0mn of additional DIP financing was required of the Debtors by their existing DIP lenders (prepetition term loan lenders led by JPMorgan Chase Bank, N.A. as agent); with failure to do so within 30 days of the Petition date an event of default in respect of the earlier financing (the "Initial DIP Financing") and triggering a “Full-Chain Liquidation,” i.e. “a sale of all or substantially all of the Debtors’ assets through an orderly liquidation of the Debtors entire chain of stores…”
For the Debtors, the scramble (and then scramble again) has been worth it; with the terms of the financing dramatically better. The interest rate dropping from the LIBOR plus 9% offered by BRF to LIBOR plus 5% and the combined up front and exit fees slashed from 5% (again BRF) to just 1.5%.
How/why did this happen? Mostly because the Debtors underlying prospects seem to have improved, enough so that the Debtors received "a competing proposal" in Mid-June…and then…another one. The Debtors provide [Docket No. 307]: "Due to stronger than expected sales revenue, the Debtors’ liquidity is greater than originally anticipated. As a result the Debtors have agreed to the Committee’s request to postpone consideration of the relief sought in the Amended Motion to July 8, 2020 (the “July 8 Hearing”). To further accommodate the July 8 Hearing date, the DIP ABL Agent has also agreed to an extension of the milestone in the DIP ABL Credit Agreement otherwise requiring the Debtors to obtain additional DIP financing secured by the Debtors’ unencumbered real estate assets within forty (40) days of the Petition Date. In light of the additional notice to be provided to parties-in-interest in advance of the July 8 Hearing, the Debtors will seek final, rather than interim, approval of the Amended Motion at the July 8 Hearing. The Debtors have received a competing proposal to provide DIP financing secured by the Debtors’ Real Estate Assets and as a result the Debtors will invite BRF Finance Co., LLC ('BRF'), and the competing lender (the 'Competing Lender') to each provide its best and final offer on or before 12 p.m. Central Time on July 2, 2020 (the 'July 2 Deadline') to counsel to the Debtors, counsel to the DIP ABL Agent, and counsel to the Committee."
Prepetition Indebtedness
The Debtors are party to an August 2015 credit agreement (the “Prepetition Credit Agreement”), with JPMorgan Chase Bank, N.A. (“JPM”) as administrative agent; and JPM, Bank of America, N.A., and Wells Fargo Bank, N.A. as lenders.
The Prepetition Credit Agreement initially provided for a senior secured asset based revolving credit facility in an amount up to $180.0mn and as of the Petition date, total funded obligations under the Prepetition Revolving Credit Facility totaled $47,947,700 including $8,823,449 in letters of credit.
As a result of a COVID-19 driven decision to close their stores, the Debtors breached a provision in Prepetition Credit Agreement prohibiting the Debtors from “suspend[ing] the operation of its business in the ordinary course of business.” The Debtors, ultimately entered into a forbearance agreement in respect of the resulting default; terms of which included, inter alia, a permanent reduction of commitments from $180.0mn to $130.0mn million and required certain additional prepetition payments.
About the Debtors
Tuesday Morning Corporation (NASDAQ: TUES) is one of the original off-price retailers specializing in name-brand, high-quality products for the home, including upscale home textiles, home furnishings, housewares, gourmet food, toys and seasonal décor, at prices generally below those found in boutique, specialty and department stores, catalogs and on-line retailers. Based in Dallas, Texas, the Company opened its first store in 1974 and currently operates 687 stores in 39 states.
Key Documents:
The following documents are attached to the Disclosure Statement [Docket No. 1634]:
- Exhibit 1: Plan
- Exhibit 2: Liquidation Analysis
- Exhibit 3: Financial Projections
- Exhibit 4: Terms of the New ABL Credit Facility
- Exhibit 5: Backstop Agreement
Liquidation Analysis (See Exhibit 2 of Disclosure Statement for notes [Docket No. 1578])
About the Debtors
About the Prepetition Debtors
Tuesday Morning Corporation (formerly NASDAQ: TUES) is one of the original off-price retailers specializing in name-brand, high-quality products for the home, including upscale home textiles, home furnishings, housewares, gourmet food, toys and seasonal décor, at prices generally below those found in boutique, specialty and department stores, catalogs and on-line retailers. Based in Dallas, Texas, the Company opened its first store in 1974 and currently operates 687 stores in 39 states.
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