February 14, 2023 – Tuesday Morning Corporation and six affiliated Debtors (“Tuesday Morning” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 23-90001 (Judge Edward L. Morris). The Debtors, an off-price retailer specializing in products for the home (487 stores in 40 states as at September 21, 2022), are represented by Deborah M. Perry of Munsch Hardt Kopf & Harr P.C. Further board-authorized engagements include (i) BDO USA as restructuring advisor, (ii) Piper Sandler as investment banker and (iii) Stretto as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Centro Inc. ($1.4mn trade claim), (ii) Home Essentials and Beyond Inc. ($1.1mn trade claim) and (iii) Meyer Corp. ($830k trade claim).
Filing Date Highlights
- Off-Price Retailer (487 Stores) Files Chapter 22 with Over $100.0mn in Liabilities
- Filing Follows $32.0mn September 2022 "Lifeline" from New Owners Distressed E-Commerce Specialist Retail Ecommerce Ventures LLC and Ayon Capital
- In Addition to "Challenging Consumer Environment," Debtors Cite Changes to "Leadership Team" Following Wholesale Changes at Board and C-Suite
- Lines Up $51.5mn of DIP Financing to be Provided by Invictus Global Management, LLC
- Footprint Optimization Effort to Include Closing Stores "In Low-Traffic Regions"
In a press release announcing the filing, Tuesday Morning notes that: "it is pursuing a financial and operational reorganization to enable the Company to reduce its outstanding liabilities, obtain significant and necessary capital, and ultimately transform into a nimbler retailer that serves heritage markets in a profitable manner….The Company has also obtained a commitment from Invictus Global Management, LLC (together with its affiliates, 'Invictus') to provide $51.5 million of debtor-in-possession ('DIP') financing to support ongoing operations during the proceedings. The DIP financing is subject to approval of the Bankruptcy Court.
During the restructuring process, Tuesday Morning plans to focus on optimizing its store footprint and focusing on its core and heritage markets. The Company intends to close stores in low-traffic regions while allocating the proper resources to remaining stores in high-traffic regions. The Company believes this targeted approach to winding down unprofitable and underperforming stores will position Tuesday Morning to emerge from bankruptcy with a profitable, cash-generating store fleet that serves its most engaged and loyal customers."
The Debtors return to bankruptcy comes notwithstanding the receipt of a $32.0mn lifeline (in the form of convertible debt) from Ayon Capital, LLC (“Ayon”) and Retail Ecommerce Ventures LLC (“REV,” which holds just over 50% of the Debtors' equity) in September 2022.
REV has established itself a something of a ubiquitous player in the distressed e-commerce space, having acquired the e-commerce assets of, inter alia, Pier 1 Imports, Linens ‘n Things, Stein Mart and Modell’s Sporting Goods, out of bankruptcy.
With the September 2022 financing, came a change of control of the Debtors and a wholesale replacement of the Debtors' board (only CEO Fred Hand staying on…and that only until he "decided to retire" six weeks later), with REV's Tai Lopez and Dr. Alex Mehr taking two board slots and REV and Ayon given the authority to fill three more. The Debtors also nominally got three independent directors, albeit also appointed by REV and Ayon.
The injection of financing, then heralded as providing "sufficient liquidity to pay down creditor and supplier obligations and sufficient liquidity to support operations moving forward," seems to have quickly proved insufficient with the Debtors back into the hunt for more capital just two months later citing "lower than forecast sales, increased insurance costs and costs relating to the separation with senior Company executives in November 2022 [resulting in a position where] the Company is facing near-term capital constraints and is actively seeking to raise additional capital."
Less than two months after the REV and Ayon assumed control of the Debtors, the Debtors were suddenly afflicted by an acute case of the "great retirement-itis," with CEO Fred Hand, Chief Operating Officer (and interim Chief Financial Officer) Mark Katz and "Principal and Chief Merchant" Paul Metcalf all suddenly "deciding to retire." Stepping into the significant void, Andrew T. Berger, with the Debtors since his appointment to the Board as an independent seven weeks earlier) was appointed Chief Executive Officer (and taking over CFO responsibilities for good measure).
The Debtors have yet to file a debtor-in-possession ("DIP") motion and there is no detail as to the terms of the $51.5mn of DIP financing that the Debtors report is to be supplied by Invictus. Invictus does, however, have an interesting existing relationship with the Debtors, having taken an activist role as an unsecured creditor ($6.0mn of claims) in the first Tuesday Morning bankruptcy; actively buying up claims and going as far as to file an objection seeking contractual (as opposed to federal judgment rate) interest in respect of general unsecured claims that were ultimately made whole in a bankruptcy which actually saw a return to equity (Invictus, had to settle for the federal judgment rate).
In a December 23, 2022 press release, the Company (NASDAQ: TUEM) announced that it had notified The Nasdaq Stock Market LLC (“Nasdaq”) of its decision to voluntarily delist its common stock from the Nasdaq Capital Market.
The press release notes: "Due to a number of factors, including lower than forecast sales, increased insurance costs and costs relating to the separation with senior Company executives in November 2022, the Company is facing near-term capital constraints and is actively seeking to raise additional capital. With the Company’s liquidity position and the potential benefits of listing in mind, the Board of Directors has determined that the voluntary delisting of the Company’s common stock is in the best interests of the Company and its stockholders.
A subsequently filed February 23rd 8-K confirmed the delisting.
On 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 Debtors entered that that turn through the bankruptcy turnstiles with estimated assets of $92.0mn and estimated liabilities of $88.35mn. They also had a then footprint of 687 stores in 39 states.
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.”
About the Debtors
According to the Debtors: “Tuesday Morning Corporation 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 487 stores in 40 states."
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The post Tuesday Morning Corporation – Following Apparent Failure of November 2022 Lifeline (from Retail Ecommerce Ventures LLC and Ayon Capital) and Wholesale Board/Management Changes, Off Price Retailer Files for Bankruptcy for the Second Time in Two Years appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.