February 8, 2023 – Nielsen & Bainbridge, LLC and 13 affiliated debtors (dba NBG Home*, “NBG” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90071 (Judge TBD). The Austin, Texas-based Debtors, "a leading global designer, manufacturer and marketer of affordable home décor products," are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further Board authorized appointments include: (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Alvarez & Marsal North America, LLC as financial advisors, (iii) Guggenheim Securities, LLC as investment bankers (iv) Hilco Real Estate, LLC, as exclusive agent with respect to the sale of certain properties and (v) Omni Agent Solutions as claims agent.
*Sycamore Partners acquired NBG Home from Kohlberg & Company, L.L.C. in April of 2017.
The Debtors’ lead petition notes between 5,000 and 10,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $500.0mn and $1.0bn ($413.0mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Wangbin Decorative Material Co. ($5.6mn trade claim), (ii) Lamplux Co. Ltd ($3.9mn trade claim) and (iii) Litesun Lighting Co. ($3.2mn trade claim). 29 of the top 30 unsecured claims are for trade payables (@20 Chinese counterparties) and all are in excess of $750k.
UPDATE: On February 10th, the Debtors filed a motion seeking approval of: (i) their Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed (accelerated) timetable culminating in a Plan confirmation hearing on March 24, 2023 [Docket No. 70].
Petition Date Highlights
- Sycamore Partners-Controlled Home Décor Leader Files for Bankruptcy with $413.0mn of Funded Debt and $82.0mn of Trade Payables
- Highly Reliant on Chinese Goods (95%), Debtors Cite China Trade War and 400% Increase in Shipping Costs
- Restructuring Support Agreement Executed Amongst Sycamore Partners, First Lien Debt Holders (@52% support of $282.0mn outstanding) and Second Lien Debt Holders (100%)
- Silver Point and KKR to Serve as Initial Plan Sponsors and Stalking Horse (Bid to Cover "At Least" Outstandings Under $60.0mn DIP and $58.2mn Owed Under Prepetition ABL Facility)
- Debtors, Down to Last $2.0mn of Liquidity, Line Up $60.0mn DIP Facility ($30.0mn New Money) from First Lien Lenders
- Debtors File Plan and Disclosure Statement, with Just 52% of First Lien Support Shy Away from "Pre-Arranged" Characterization
Goals of the Chapter 11 Filing
"The Restructuring Transactions embodied in the Restructuring Support Agreement and the Plan will enable the Debtors to substantially reduce their funded-debt obligations and to emerge from the Chapter 11 Cases on an expedited basis with a right-sized balance sheet and a streamlined business model poised for success
in a dynamic retail environment."
Plan and RSA Overview
The Disclosure Statement provides: "In order to capitalize on the Debtors’ prepetition marketing efforts, the Plan contemplates a sale of 100% of the New Common Stock to either (a) certain funds affiliated with Silver Point Capital, L.P. ('Silver Point') and KKR Credit Advisors (US) LLC ('KKR'), which have agreed to serve as initial plan sponsors (the 'Initial Plan Sponsors'), or (b) a prospective third-party purchaser that submits a bid pursuant to the Bidding Procedures that the Debtors determine, in their reasonable business judgment, to be higher or otherwise better. To establish a minimum bid and facilitate the Marketing Process on a postpetition basis, the Initial Plan Sponsors have committed to purchase 100% of the equity in Reorganized NBG (the 'New Common Stock') for an amount in cash at least equal to the total amount of Allowed DIP Roll-Up Claims attributable to the initial principal amount of DIP Roll-up Loans, plus any Additional Cash Amount (the 'Stalking Horse Bid'). Consideration for the Stalking Horse Bid shall equal the total amount of Allowed DIP Claims as of the Effective Date, plus the total amount outstanding under the ABL Facility as of the Plan Effective Date. (such consideration, collectively, the “Stalking Horse Bid Consideration”). Should the Debtors receive a higher or otherwise better bid, any value above the Stalking Horse Bid Consideration ('Additional Value') will be distributed as set forth in the Plan; in the event that such a bid does not materialize, the Debtors will consummate a sale transaction with the Initial Plan Sponsors."
Restructuring Support Agreement
The Disclosure Statement provides: "The restructuring support agreement [attached at Exhibit C, the "RSA"]… enjoys the support of (a) the Debtors’ current equity holder, Sycamore Partners Management, L.P. collectively with its affiliated investment funds and affiliates and portfolio companies of the foregoing (collectively, 'Sycamore,' or the 'Sponsor'), (b) certain holders representing over 52% of the aggregate principal amount outstanding under the Debtors’ first lien term loan facility…(the 'First Lien Term Loan,' and such holders, the 'Consenting First Lien Term Loan Lenders'), (c) certain holders representing 100% of the aggregate principal amount outstanding under the Debtors’ second lien term loan facility…(the 'Second Lien Term Loan,' and such holders, the 'Consenting Second Lien Term Loan Lenders'); and (d) certain holders representing 100% of the aggregate principal amount outstanding under the ABL credit facility …(the 'ABL Facility,' and such holders, the 'Consenting ABL Lenders')."
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“ABL Claims”) is impaired and entitled to vote on the Plan. The estimated amount of claims is $57.7mn and expected recovery is 100%. each holder shall receive: (i) where the Initial Plan Sponsors are the Plan Sponsor, (a) its Pro Rata share of the New ABL Credit Facility, on such terms as agreed among the Debtors, the ABL Lenders, and the Plan Sponsor, or (b) with the consent of the Debtors and the Plan Sponsor, payment in full, in Cash, on the Effective Date; or (ii) where any other party is the Plan Sponsor, payment in full in Cash on the Effective Date.
- Class 4 (“First Lien Term Loan Claims”) is impaired and entitled to vote on the Plan. The estimated amount of claims is $282mn. each holder shall receive its Pro Rata share of Additional Value, if any, after all Allowed Claims in Class 3 have been satisfied in full; provided, however, that in no event shall any Holder of a First Lien Term Loan Claim receive, on account of such Claim, a recovery greater than 100% of the Allowed amount of such Claim.
- Class 5 (“Second Lien Term Loan Claims”) is impaired and entitled to vote on the Plan. The estimated amount of claims is $73mn. each holder shall receive its Pro Rata share of Additional Value, if any, after all Allowed Claims in Class 4 have been paid in full; provided, however, that in no event shall any Holder of a Second Lien Term Loan Claim receive, on account of such Claim, a recovery greater than 100% of the Allowed amount of such Claim.
- Class 6 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 7 (“Intercompany Claims”) is unimpaired/ impaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 8 (“Intercompany Interests”) is unimpaired/ impaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 9 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 10 (“Interests in NBG”) is impaired, deemed to reject and not entitled to vote on the Plan.
Key Documents
The Disclosure Statement [Docket No. 23] attached the following exhibits:
- Exhibit A: Plan of Reorganization
- Exhibit C: Restructuring Support Agreement
- Exhibit D: Valuation Analysis (to be filed)
- Exhibit E: Liquidation Analysis (to be filed)
Proposed Key Dates
- Solicitation Deadline: February 27, 2023
- Plan Supplement Deadline: March 10, 2023
- Voting Deadline: March 17, 2023
- Plan and Disclosure Statement Objection Deadline: March 17, 2023
- Combined Hearing Date: March 24, 2023
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides: "The onset of the COVID-19 pandemic and its aftermath—including a challenging market environment, supply chain disruption, and increasing freight costs—created a difficult operating environment for the Debtors over the past two years. Freight costs, at their peak, soared nearly 400% at their peak from a pre-COVID average of $5,000 to over $19,500 per shipping container. Delays brought about by supply chain disruption caused a seasonal misalignment as many products arrived too late for the intended season. In addition, the U.S.-China trade war has amplified these challenges by indirectly passing tariff costs on to the Debtors and further raising the fixed costs of importing internationally sourced materials and products. Finally, the Debtors have experienced the 'second wave' effect of COVID-19 as consumer demand has declined in the face of inflationary pressure. The cumulative effect of these events has been to depress revenues as costs increased, severely undercutting profitability.
Faced with these challenges, the Debtors and their advisors have spent the past half year analyzing options for addressing long-term maturities on their funded-debt facilities while continuing to fulfill short-term obligations to vendors, customers, and other business partners. In addition to taking other practical steps, the Debtors made significant progress toward stabilizing operations by performing extensive, data-driven analyses to right-size their product catalogue, overhead, and profitability. Short-term cash flows declined unexpectedly in mid-January 2023, however, when Wells Fargo Bank, N.A. ('Wells Fargo') notified the Debtors that it would no longer be purchasing accounts receivables pursuant to the account purchase agreement between the parties. With the need for cash growing more pressing by the day, the Debtors began proactively engaging with their key stakeholders to discuss the terms of a comprehensive restructuring transaction."
Drilling down on the "trade war," the Debtors provide: "NBG Home, with approximately 95% of purchase orders coming from China, could not escape the economic impact of the trade war. The tariffs incurred by the shipping vendors were passed on to NBG Home as a function of the shipping agreements. The trade war directly affected Company revenues from 2018 to 2019. During that time period, EBITDA decreased from $69 million in 2018 to $25 million in 2019. The impact of the trade war continues to create increased costs for the company today."
On COVID and shipping costs, the Debtors continue: "The Debtors experienced three long-lasting side effects as a result of COVID-19.
First, region-wide quarantines, the shuttering of physical stores, and the general closure of public spaces slowed the demand for the Debtors’ goods from select retail partners in the home goods space. These business lines were slow to recover—in general, online spending simply did not compensate for onsite spending for these retail stores as end consumers sought goods from specialized online sellers. For brick-and-mortars retailers already navigating formidable obstacles in the digital age, the transition to a predominantly work-from-home environment exacerbated these issues. The Debtors experienced the “second wave” resulting from the reduced consumer demand due to inflationary pressure. As the Debtors’ retail partners saw demand fall, they did not meet their expected sell-through of NBG Home product, resulting in excess inventory on their shelves. In turn, many customers, such as TJX and At Home, significantly reduced orders from the Company in order to sell through the excess inventory.
Second, a few months into the pandemic, the company saw fixed costs rise in dramatic fashion. NBG Home sources most goods internationally and ships them to the United States. The COVID-19 pandemic created unusually heightened freight costs in 2020 and 2021. During this time, the average container price across all ports of entry increased nearly fourfold from approximately $5,000 per shipping container in January 2021 to a peak of approximately $19,500 in October 2021.
Third, not only the did the price of shipping go up, but so did the arrival time of products. The pandemic caused additional labor shortages and impacted nearly every component of Debtors’ supply chain. The delay led to a backlog of shipments later on when satisfying the pent-up demand. The backlog meant the Debtors were not able to satisfy seasonal demand on time which severely affected sales."
The Debtors' declaration in support of first day motions adds: "In response to these challenges, the Company took a proactive data-driven approach to right-size their product assortment and overhead and restore profitability. While the Debtors’ management believes in this turnaround plan and it forms the basis of the go-forward business, the Company ultimately did not have the liquidity to fully implement and execute on its plan. As of the Petition Date, the Debtors have over $413 million in funded indebtedness and approximately $82 million in outstanding trade payables, but only approximately $2 million in available liquidity."
A timeline setting forth the Debtors’ numerous prepetition efforts to deleverage their balance sheet and offset increasing operating and financial pressures, as described above and in greater detail herein, is as follows:
DIP Financing
The Debtors have commitments for a $60.0mn debtor-in-possession ("DIP") financing facility to support working-capital needs during the Chapter 11 cases. The DIP facility is comprised of $30.0mn of new money and a $30.0mn roll-up of the Debtors' First Lien Term Loan.
Prepetition Indebtedness
As of the Petition date, the Debtors have approximately $413.0mn in total funded debt, consisting of the following:
- ABL Credit Agreement. The Debtors are party to an April 2017 ABL Credit Agreement further to which they were provided with an asset-based revolving credit facility in an aggregate principal amount of $75.0mn, with Wells Fargo serving as administrative agent and collateral agent for the ABL Lenders. The ABL Credit Facility matures on July 9, 2026, and as of the Petition Date approximately $58.2mn is outstanding under the facilty
- First Lien Initial Term Loan. The Debtors are party to an April 2017 First Lien Credit Agreement, with Deutsche Bank AG New York Branch as administrative and collateral agent for the First Lien Term Loan Lenders. The “First Lien Term Loans” mature on April 26, 2024 and as of the Petition date, $282.0mn is outstanding on the loans.
- Second Lien Term Loan. The Debtors are party to an April 2017 Second Lien Credit Agreement, with Cortland Capital Market Services LLC as administrative and collateral agent for the Second Lien Term Loan Lenders. The “Second Lien Term Loans” mature on October 26, 2024 and as of the Petition date, $73.0mn is outstanding on the loans.
About the Debtors
According to the Debtors: “Headquartered in Austin, Texas, NBG Home is the largest provider of affordable home décor products, including lighting, accent furniture, soft goods, wall décor, frames and other categories marketed under brands such as Pinnacle, Jimco, Patton, Plantation Patterns, THRO and its most recent acquisition Quoizel. Through its leading research, innovation and product development capabilities, NBG Home offers trend-right products at affordable price points, and serves a wide variety of retail partners, including mass merchants, specialty stores, discount stores, home centers, warehouse clubs, and internet retailers."
The Disclosure Statement adds: "The Debtors are…a key supplier of affordable home décor in the United States across a portfolio of product categories, including, among others, lighting, accent furniture, soft goods, wall décor, and frames marketed under brands such as Pinnacle Frame & Accents, Jimco Lamps & Home Decor, Patton Wall Decor, Plantation Patterns, and Quoizel Lighting. A true end-to-end service provider, the Debtors’ omni-channel business model facilitates partnerships with brick-and-mortar and eCommerce retailers from design and development to logistics and fulfillment. Today, the Debtors are the only business in the affordable home décor industry that offers domestic, direct import, port of entry, and drop-ship delivery logistic solutions, positioning the Company as a one-stop solution for its retail customers. The Debtors own certain manufacturing centers in Alabama, and otherwise lease offices, distribution centers, and manufacturing centers in Alabama, Arkansas, California, Illinois, Mississippi, North Carolina, New York, South Carolina, and Texas. The Debtors primarily provide shipping and logistics services by connecting principally internationally sourced goods with mass, wholesale, and online retailers. The Debtors are headquartered in Austin, Texas, and employ approximately 730 individuals."
Corporate History
NBG Home’s namesake—Charles Bainbridge—founded the company in 1867 in Brooklyn, New York when Charles Bainbridge patented the very first decorative matboard. In so doing, he created the framing industry as we understand it today. The company Nielsen, founded in 1971, was known for its work in unique aluminum moulding for picture frames. The two companies merged in 1984, forming Nielsen Bainbridge, which later rebranded as Nielsen Bainbridge Group and focused on a wider array of home goods offerings in the portable lighting, hardwire lighting, outdoor décor, soft home (i.e., clothing and bedding), and wall art business categories.
In the last fifteen years, the Company has quickly added to its portfolio of brands, broadening its high-quality range of product offerings and expanding its footprint in the home décor space, which now includes eight businesses operating independently under the NBG Home name. A timeline of the acquisitions is shown below:
Nielsen Bainbridge Group expanded rapidly: the Company acquired Pinnacle Frames & Accents in 2011 and Burnes of Boston in 2012 to grow its presence in framing products. In 2014, Nielsen Bainbridge Group grew into textiles, wall décor, and furniture when it acquired The Home Décor Companies, a leading provider of home décor products to mass, home improvement, discount, and specialty retailers. The brands under The Home Décor Companies included Patton Wall Decor, Jimco Lamps & Home Decor, and THRO. Combined, Nielsen Bainbridge with The Home Décor Companies became known, and still is known today, as “NBG Home.” The Company next expanded into outdoor goods through the acquisition of Dwell & Decor Outdoor (also known as Plantation Patterns). In 2017, Sycamore—a private equity firm based in New York specializing in retail and consumer investments— acquired NBG Home. The Company then purchased Cheyenne Products to further develop its portable lighting and furniture footprint with Walmart. In 2018, the Company entered the hardwire lighting category with the acquisition of Quoizel Lighting, which further built out NBG Home’s differentiated market presence.
Corporate Structure Chart
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