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David’s Bridal, LLC – Court Approves Bidding Procedures as Part of “Dual Path” Sale Effort (the Other Path Being a “Soft” Inventory Sales Process); Schedules Auction for June 1st and Sale Hearing for June 12th

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April 19, 2023 – In furtherance of one path in what is a nuanced “dual path” sale process, the Court hearing the David’s Bridal cases issued an order: (i) approving bidding procedures in relation to a going concern sale of the substantially all of the Debtors’ assets, (ii) authorizing the Debtors to select one or more stalking horse bidders (none yet selected) and offer bid protections to any selected stalking horse, and (iii) adopt a proposed auction/sale timetable culminating in an auction on June 1st Auction and June 12th Sale Hearing. A proposed form of stalking horse asset purchase agreement (the “APA,” form now approved) is attached as Exhibit 2 to the motion.

The Debtors, having failed to generate sale interest out of court* (at least not fast enough to avoid Chapter 11 as liquidity issues became terminal) are hoping that the benefits of in-Court sale will tip them back into going concern sellability. The Debtors are not, however, just waiting around for a going concern suitor and are parallel pathing what is termed a "soft" inventory sale process; a process that can quickly be ramped up to a full-blown liquidation with the help of now Court-approved store closing consultant (and DIP lender) Gordon Brothers. 

* in damned by faint praise disclosure, the Debtors note that their "comprehensive marketing process" (begun in December) resulted in "Several of those [90] parties conduct[ing] management meetings or calls."

The failure of out-of-court sale efforts, combined with the multi-hatted role of Gordon Brothers (although set to fare well in an asset sale thanks to hefty DIP fees and a cut of sale, "soft" or otherwise, proceeds) presumably not agnostic as to the choice between a going concern sale and fast full-blown liquidation plumped up by some of the reported "truckloads" of supplemental merchandise** they otherwise had on the road to Tuesday Morning stores (the deliveries were called off) where they have played a similar dual-hatted role (DIP lender and store closing consultant) in what has been one of the ugliest bankruptcies in recent memory (see our separate coverage of fellow bankruptcy recidivist Tuesday Morning).

* The Gordon Brothers consulting agreement allows (“Additional Consultant Goods,” with Debtors getting 7.5%) "which are of like kind, and no lesser quality to the Merchandise in the Sale solely at the US Stores…"

The two paths, looking for a going concern buyer in respect of stores one is otherwise looking to liquidate/close, are clearly somewhat at cross purposes, with the Debtors' CEO James Marcum noting as to the balancing act: "The Debtors and Gordon Brothers Retail Partners, LLC ('Gordon Brothers') have proposed procedures related to a potential wind-down of the Debtors’ business operations and liquidation of inventory in all retail stores….The Debtors will manage their inventory in the coming weeks to further the opportunity to secure a value-maximizing going-concern transaction and, to the extent one materializes, will quickly pivot to cease store closings at any stores needed to implement the transaction…"

Case Status

On April 17, 2023, David’s Bridal, LLC and five affiliated debtors (“David’s Bridal” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($256.9mn of funded debt). At filing, the Debtors, “the nation’s leading bridal and special occasion authority*, noted that “In light of its liquidity constraints, the Company was unable to finalize its marketing and sale process out of court and intends to continue exploring a sale of all or some of its assets pursuant to section 363 of the Bankruptcy Code.”

*As at filing, the Debtors and their non debtor subsidiaries operate 294 stores across the United States, Canada, and United Kingdom and franchise 8 stores in Mexico. The Debtors are headquartered in Conshohocken, Pennsylvania and currently employ approximately 10,000 employees.

As discussed further below, the Debtors emerged from an earlier bankruptcy in early 2019 (exactly as COVID was beginning) minus almost $450.0mn of funded debt. That "prepackaged" bankruptcy was precipitated by "headwinds facing the brick-and-mortar retail industry" and "the amount of debt on the Debtors’ balance sheet, most of which will mature with the next 12 months.” This time around, albeit with funded debt at roughly one third of those early 2019 levels, it is the lingering impact of COVID and the "casualization" of wedding-related consumer behavior (itself undoubtedly a lingering impact of the COVID pandemic, a period during which many consumers became detached from pre-COVID wedding spending habits) that has precipitated a liquidity crisis.  

Sale Background

Bidding Procedures Motion

The motion [Docket No. 19] states, “[t]he Debtors filed these chapter 11 cases with the intent to conduct a going concern sale process for all or some of their assets, on an expedited basis, and simultaneously initiating “soft” sales in their retail locations to monetize their inventory. This dual path process is necessary to maintain optionality, conserve liquidity and maximize the value of the Debtors’ assets. The Debtors, however, continue to believe that there is value in their brand and operations as a going concern. The Debtors and potential purchasers remain interested in exploring potential sale transactions on a post-petition basis. Accordingly, by this Motion, the Debtors propose an expeditious, public and flexible bidding and sale process to pursue a going concern transaction or a sale of discrete assets that is substantially similar to those procedures by other retailers in similar circumstances. In the event that the Debtors are unable to implement a sale transaction, the Debtors will not have sufficient liquidity to continue to operate in the ordinary course and will be forced to wind-down their operations and liquidate the inventory in all of their retail stores.”

Prepetition Marketing Process

The motion continues, “In December of 2022, the Debtors engaged Houlihan Lokey Capital, Inc. (the “Investment Banker”) as their investment banker to initiate a comprehensive marketing process for a going-concern sale of some or all of the Debtors’ assets. Beginning on February 20, 2023, the Debtors and the Investment Banker contacted in excess of 90 potentially interested parties, including various strategic and financial buyers. All of those parties either reviewed a teaser document or participated in high-level discussions about the transaction. Thirty-five of those parties entered into confidentiality agreements with the Debtors and were provided access to a virtual data room that included, among other things, a confidential information memorandum and the Debtors’ go-forward business plan. Several of those parties conducted management meetings or calls.

Approved Key Dates (with the excepion of the sale hearing, adopted as proposed)

  • Bid Deadline: May 30, 2023
  • Sale Objection Deadline: May 31, 2023
  • Auction: June 1, 2023
  • Objection to Successful Bidder: June 8, 2023
  • Sale Hearing: June 12, 2023 (this sliding by a week)

General Background

Filing Date Highlights

  • Wedding Specialist Back in Chapter 11 for Second Time in Under Four Years with $259.9mn of Funded Debt
  • Cites "Casualization" of Wedding Events as Well as COVID and Liquidity-Driven Constraints on Management Initiatives as Forcing Chapter 22
  • Will Ostensibly Continue to Pursue Failed Out-of-Court Going Concern Sale Effort…In-Court, But Clearly Poised to Morph "Strategic Management of Inventory" Workstream into Full-Blown Liquidation Operation

In a press release announding the development, the Debtors provide: "Prior to today's announcement, David's Bridal initiated an evaluation of a wide range of strategic alternatives to maximize value for all stakeholders, including a marketing and sale process for its assets. In light of its liquidity constraints, the Company was unable to finalize its marketing and sale process out of court and intends to continue exploring a sale of all or some of its assets pursuant to section 363 of the Bankruptcy Code. Alongside these efforts, the Company is also strategically managing inventory and evaluating its physical footprint to maximize value and the prospect of a successful going concern transaction

The Company expects to file a recognition proceeding in Canada and a subsidiary of David's Bridal expects to commence an administration proceeding for its business in the United Kingdom."

James Marcum, the Debtors' Chief Executive Officer, commented: "…our business continues to be challenged by the post-COVID environment and uncertain economic conditions, leading us to take this step to identify a buyer who can continue to operate our business going forward."  

Previous Chapter 11

In January 2019, the Debtors emerged from an earlier whirlwind, prepackaged bankruptcy, which saw holders of $270.0mn of senior unsecured notes exchange those notes for 8.75% of the emerged Debtors’ new common stock and warrants (the latter presumably used for confetti) which translated into a 4.4% recovery based on a then $436.0mn mn valuation of the Debtors’ new equity. The need to seek bankruptcy shelter in that instance (Delaware, lead case number 18-12635) was attributed to the "headwinds facing the brick-and-mortar retail industry" and "the amount of debt on the Debtors’ balance sheet, most of which will mature with the next 12 months.”
Holders of the Debtors’ senior bank debt ($481.2mn as at filing in January 2019) got a 70.8% recovery based on that same new equity valuation and their receipt of 76.25% of the new common stock. In addition to equity, holders of senior bank debt took their pro rata share in the Debtors’ then new $300.0mnmn senior facility; the net result for the Debtors being the extinguishment of $181.2mn of senior bank debt…and the ability to claim an aggregate $450.0mn debt reduction. 
In a press release announcing the Court’s 2018 Plan confirmation, the Debtors then provided, “David's Bridal will reduce its debt by approximately $450 million and…marks the beginning of an exciting new chapter at David's Bridal as a stronger company with significantly less debt."
Goals of the (Current) Chapter 11 Filing
The Marcum Declaration (defined below) provides: "In connection with the Company’s consideration of strategic alternatives, the Company has identified various operational efficiency initiatives to support a new, scaled down enterprise, including a reduction in its store fleet, corporate and store workforce, and corporate expenses. The Debtors commenced these chapter 11 cases to, among other things, obtain the immediate access to liquidity necessary to implement these cost saving initiatives and continue the marketing process for a potential sale transaction."
On sale efforts and possible pivot to liquidation, Marcum continues: "While the Debtors will continue to conduct a sale process at the outset of these chapter 11 cases, if the Debtors are unable to implement a going-concern transaction, the Debtors will turn to an orderly liquidation of their remaining assets, including the sale of distinct assets separate from the Debtors’ operations….The Debtors and Gordon Brothers Retail Partners, LLC ('Gordon Brothers') have proposed procedures related to a potential wind-down of the Debtors’ business operations and liquidation of inventory in all retail stores that are substantially similar to procedures used by other retailers in similar circumstances. To the extent necessary, the Debtors believe that the proposed timeline and procedures would result in an expedited and efficient wind-down process. The Debtors will manage their inventory in the coming weeks to further the opportunity to secure a value-maximizing going-concern transaction and, to the extent one materializes, will quickly pivot to cease store closings at any stores needed to implement the transaction."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Marcum Declaration), James Marcum, the Debtors’  CEO commented: “On…January 18, 2019, the Debtors successfully emerged from the Prior Chapter 11 Cases, deleveraging their balance sheet by approximately $434 million….Notwithstanding…the Company is suffering under severe liquidity constraints brought on by a confluence of adverse macroeconomic trends and industry specific headwinds, including the lasting impact of COVID-19 on the wedding industry….A confluence of factors contributed to the Debtors’ need to commence these chapter 11 cases. First, internal factors, including the liquidity needs of the Company to support its significant operating expenses, and disruptions to management initiatives, have impaired the Debtors’ liquidity. Second, the impact of the COVID-19 pandemic, as well as the significant shift in the competitive landscape due to the disruption in the retail industry, has led to a decrease in sales. Finally, shifts in consumer behaviors have contributed to the elongation of wedding planning cycles and an overall casualization in wedding events, thereby affecting the demand for more traditional wedding gowns and formal attire, all of which have further reduced the Debtors’ revenue.
About the Debtors
According to the Debtors: “With 70 years of experience dressing customers for all of life's special occasions, David's Bridal is built on the idea everyone deserves to have the attire of their dreams regardless of style preference, shape, size, or budget. We believe in: CELEBRATING all life's magical moments, INNOVATING so we are always serving her, PERSONALIZING everything so it's all done her way, DESIGNING the most luxurious dresses, and finally, KINDNESS – so she doesn't have to worry about anything. It is our mission to help anyone, and everyone, find the look that will allow them to be the best, most genuine version of themselves on their wedding day or any special occasion."
The Marcum Deeclartion adds: "The Debtors sell a broad assortment of bridal gowns, bridesmaid dresses, special occasion dresses and accessories. As of the date hereof, the Debtors and their nondebtor subsidiaries operate 294 stores across the United States, Canada, and United Kingdom and franchise 8 stores in Mexico. The Debtors are headquartered in Conshohocken, Pennsylvania and currently employ approximately 10,000 employees."

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The post David’s Bridal, LLC – Court Approves Bidding Procedures as Part of “Dual Path” Sale Effort (the Other Path Being a “Soft” Inventory Sales Process); Schedules Auction for June 1st and Sale Hearing for June 12th appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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