January 4, 2021 – The Court hearing the Francesca’s Holdings Corporation cases issued a final order approving (i) the Debtors’ assumption of a store closing consultancy agreement with Tiger Capital Group, LLC (the “Consultant”) and (ii) store closing procedures (the “Store Closing Procedures”) [Docket No. 259]. On December 16, 2020, the Court had previously issued a substantially identical interim order which attached the December 3, 2020 consulting agreement [Docket No. 154].
As of December 1, 2020, the Debtors operated 558 boutiques in 45 states and the District of Columbia and also served their customers through www.francescas.com, their e-commerce website and their recently launched mobile app.
An affiliate of the Consultant plays other roles in the Debtors’ cases, as well, including in respect of the Debtors’ prepetition and DIP financing.
Specifically, as Andrew Clarke, the Debtors’ president and chief executive officer, noted in a declaration in support of the Debtors’ Chapter 11 filings [Docket No. 36], “Tiger Capital affiliate Tiger Finance, LLC is the sole lender under the Debtors’ assignment and assumption agreement,” and “JPM, as the sole existing lender under the Prepetition Revolving Credit Agreement, assigned 100% of its interests in the loans and commitments thereunder to Tiger Finance, LLC (‘Tiger’), the sole lender under the Prepetition Term Loan Credit Agreement. In connection with this transfer, Tiger also replaced JPM as the administrative agent under the Prepetition Revolving Credit Agreement.” Tiger Finance is also the DIP Financing agent.
Store Closings
The Debtors' requesting motion [Docket No. 46] states, “[T]he Debtors operate hundreds of retail boutiques throughout the United States. Prior to the Petition Date, the Debtors engaged in a comprehensive review of the financial performance of the Debtors’ boutiques and an analysis of their real estate lease portfolio and the markets in which the Debtors operate. As a result of this analysis, prior to the Petition Date, the Debtors closed 137 boutiques that were no longer viable locations due to the difficult retail environment and changing consumer shopping behavior. The Debtors have also identified an additional 97 boutiques that are currently underperforming relative to lease costs and which the Debtors intend to close and wind down during these chapter 11 cases (collectively, the ‘Closing Stores’). Accordingly, the Debtors determined, in their business judgment, that it was in the best interests of their estates, creditors and all parties-in interest to seek authority to close and wind down or conduct similar themed sales at the Closing Stores, with such sales to be free and clear of all liens, claims and encumbrances.
The Debtors will commence Sales at certain of the Closing Stores as soon as practicable after entry of the Interim Order. It is imperative that the Consulting Agreement and Store Closing Procedures be approved on an interim basis so that the Debtors and the Consultant may commence the Sales and Store Closings in a timely and efficient manner.”
The store closing procedures also address sales being conducted at store locations for which the lease has not expired, stating, “An unexpired nonresidential real property lease will not be deemed rejected by reason of a Store Closing or the adoption of these Store Closing Procedures.” Landlords also have the right to ask for changes to the closing procedures, with any disputes to be handled by the Court.
Consulting Agreement
The motion continues, “To maximize the value of the property of the Debtors’ estates that is attributable to the Store Closings, the Debtors entered into the Consulting Agreement with Tiger Capital Group, LLC (the ‘Consultant’), an affiliate of the DIP Agent (as defined in the DIP Motion), to assist the Debtors with conducting the Sales.”
Terms of the Consulting Agreement:
- Term of Sale: With respect to each respective Closing Store, the Sale Term shall commence on a date to be mutually agreed (the “Sale Commencement Date”) and shall end on the date determined by the Debtors, in reasonable consultation with Consultant (the “Sale Termination Date”); provided, however, that the Consultant and the Debtors may mutually agree upon an earlier or later Sale Commencement Date or Sale Termination Date with respect to any one or more Closing Stores on a Closing Store-by-Closing Store basis. The order specifies that the sale termination date will be no later than 90 days from the Debtors' Petition date.
- Consultant Compensation: In consideration of providing the Consulting Services, the Debtors shall pay the Consultant a Base Fee equal to one percent (1.0%) of the Gross Proceeds derived from the Sale. In addition, the Consultant shall earn an additional incentive fee (the “Incentive Fee” and together with the Base Fee, the “Consulting Fee”) based upon achieving the following thresholds of Gross Recovery Percentage, calculated back to the first dollar received:
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For the avoidance of doubt, the above Consulting Fee if achieved would be the total fee earned and not in addition to the Base Fee.
The Debtors shall pay Consultant a Special Purpose Payment of $100,000, which shall be held by Consultant as security for payment of the Consulting Fee, the reimbursement of Sale Expenses and payment of any other amounts to Consultant under the Consulting Agreement.
The Consultant has requested the Debtors’ consent, and the Debtors have consented, to the Consultant contracting with SB 360 Capital Partners as an additional consultant (the “Additional Consultant”) under the Consulting Agreement, without any additional expense or liability to the Debtors.
About the Debtors
According to the Debtors: “francesca’s® is a specialty retailer which operates a nationwide-chain of boutiques providing customers a unique, fun and personalized shopping experience. The merchandise assortment is a diverse and balanced mix of apparel, jewelry, accessories and gifts. As of today, francesca’s® operates approximately 558 boutiques in 45 states throughout the United States and the District of Columbia and also serves its customers through francescas.com.”
The Clarke Declaration adds: “francesca’s is a publicly-traded company that operates a nationwide-chain of boutiques that offer customers a differentiated shopping experience with on-trend merchandise at attractive prices in an inviting boutique environment that provides customers with a “treasure hunt” experience. The Debtors’ merchandise assortment represents a diverse and balanced mix of apparel, jewelry, accessories, and gifts. While the Debtors’ boutiques can be found in a variety of locations, including malls, strip malls, off-mall locations, and closed and open-air outlets, each of the boutiques is designed to provide customers with the feeling of shopping at a local, neighborhood boutique.
For the fiscal year ended February 1, 2020, the Debtors generated, on a consolidated basis, $407.5 million in net sales. As of November 1, 2020, the Debtors reported, on a consolidated basis, total assets of $264.7 million and total liabilities of $290.5 million.”
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