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Noble House Home Furnishings, LLC – E-Commerce/Big Box Furniture Distributor Buffeted by Pandemic Boom/Bust Cycle Files for Bankruptcy with $74mn of Funded Debt and $65mn of Trade Debt; GigaCloud Technology to Serve as Stalking Horse in Going Concern Sale

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September 11, 2023 – Noble House Home Furnishings, LLC and three affiliated debtors (“Noble House” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas lead case No. 23-90773 (Judge Christopher M. Lopez). The Chatsworth, California based Debtors, "a distributor, manufacturer and retailer of indoor and outdoor home furnishings with distribution throughout ecommerce channels including partners such as Amazon, Wayfair, Overstock, Target and Home Depot," are represented by Michael D. Warner of Pachulski Stang Ziehl & Jones LLP. Further Board authorized appointments include: (i) Riveron Management Services, LLC (“Riveron”) as financial advisors and supplying a CFO and (ii) Epiq Corporate Restructuring, LLC 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 (including $73.9mn of funded debt owed to Wells Fargo and an impressive $65.3mn of trade debt owed mostly to Chinese and Vietnamese suppliers…or rather…furnishers). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Jiang Su Chairone Home Furniture Co., Ltd ($4.2mn trade debt claim), (ii) HA Thanh Import-Export Company Limited ($4.0mn trade debt claim) and (iii) Wegmans Furniture Industries SDN BHD ($3.1mn trade debt claim).

Petition Date Highlights

  • Chatsworth, California E-Commerce and Big Box Furniture Distributor/Retailer Files for Bankruptcy with $73.9mn of Funded Debt and $65.3mn of Trade Debt
  • Debtors Cite Boom/Bust Impact of COVID as Exacerbated by Inflation, Supply Chain Issues and Borrowing Base Reduction as to Wells Fargo Provided Bank Facility
  • Debtors Look to Pursue Going Concern Sale with GigaCloud Technology Inc. to Serve as Stalking Horse ($85.0mn Base Opening Bid)
  • Wells Fargo Agrees to Provide $12.2mn of New Money DIP Financing Subject to Roll-Up of $73.9mn of Prepetition ABL Facility Debt

Recent Operating Performance

The Debtors probide: "Overall, from 2022 onward, easing COVID-19 stay-at-home restrictions and resulting return-to-office dynamics, rising and persistent inflation, and supply chain challenges have put significant downward pressure on the Company’s business. Total net sales decreased from $671 million in 2021 to $491 million in 2022, with 2023 revenue projected to be lower. Reported income in 2021 was $7 million, decreasing to -$34 million in 2022. During 2023 in particular, the Debtors’ liquidity and availability has worsened."

Goals of the Chapter 11 Filing

Accoring to the Bella Declaration (defined below) the Debtors intend to use Chapter 11 "to preserve and maximize the value of the Debtors’ estates and allow them to sustain their current operations in chapter 11 and effectuate a going concern sale."

Prepetition Asset Sale Efforts and Selection of Stalking Horse

The Bella Declaration provides: "…commencing in July 2023, Lincoln contacted approximately 60 potential buyers. To date, 23 of these parties have signed non-disclosure agreements. Three parties submitted preliminary, non-binding Indications of Interest (IOIs). The foregoing prepetition process culminated in the Asset Purchase Agreement dated as of September 11, 2023 (the 'Stalking Horse Purchase Agreement') by and between the Debtors and GigaCloud Technology Inc. (the 'Stalking Horse Purchaser'), a third party public company [Nasdac: GCT], for the sale of substantially all of the Debtors’ assets. Pursuant to the terms of the Stalking Horse Agreement, the Stalking Purchaser has agreed to buy the purchased assets for $85 million, subject to a working capital adjustment, plus $4.1 million for certain equipment, plus the assumption of certain liabilities. The Stalking Horse Agreement has an outside closing date of October 31, 2023."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Bella Declaration) [Docket No. 16], Gayla Bella, the Debtors’ CFO (seconded from Riveron Management Services, LLC (“Riveron”)), commented: “As a result of the current market conditions, including high inflation and softer consumer purchases in the furniture space, and faced with limited liquidity, the Company has commenced these chapter 11 cases to effectuate a going-concern sale of the Debtors’ assets to a stalking horse buyer, subject to an auction process and any higher and better bids. While the Company experienced rapid revenue growth during the COVID 19 pandemic, supply chain issues, driven by freight and delivery times, drove up costs of goods. As sales began to decline in 2022, higher expenses capitalized in inventory and infrastructure growth posed challenges. Despite the best efforts of the Company and its advisors to cut costs and secure the capital necessary to preserve the business as a going concern, the Company is unable to meet its financial obligations.'

Drilling down, Bella continues: "The COVID-19 pandemic (from March 2020 onward) and its aftermath primarily drove significant effects on the Company and its businesses and operations, posing challenges for the Debtors over the past several years, including supply and distribution chain issues, particularly as the majority of the Debtors’ merchandise have been and continue to be made in China.

Challenges included, among other issues, substantially increased inventory costs and long lead times. Notably, during the pandemic, the Company achieved 48% and 11% net revenue growth in fiscal year (FY) 2020 and FY 2021, respectively. Based on industry performance overall, customers purchased more furniture and home goods than in prior periods, potentially as a result of being home more often. However, towards the end of 2021 as the pandemic was subsiding, the Debtors’ sales began decreasing relative to prior years and since then, have continued to decline to levels closer to 2018. Net revenue declined more than 26% from December 2021 to December 2022 and 27% when comparing YTD July 2023 to YTD July 2022. Further, as a result of reporting on a FIFO (First in – First out) basis, margins continued to be impacted by higher freight costs through May 2023.

Overall, from 2022 onward, easing COVID-19 stay-at-home restrictions and resulting return-to-office dynamics, rising and persistent inflation, and supply chain challenges have put significant downward pressure on the Company’s business. Total net sales decreased from $671 million in 2021 to $491 million in 2022, with 2023 revenue projected to be lower. Reported income in 2021 was $7 million, decreasing to -$34 million in 2022. During 2023 in particular, the Debtors’ liquidity and availability has worsened. As noted above, the Debtors had defaulted under their financial coverage ratios, and subsequently, availability was further constricted. In 2023, the Company, among other actions, implemented significant cost reductions, including headcount reductions, further optimization of inventory management, and vacating its Edgewater, New Jersey facility as of mid-May 2023."

Prepetition Indebtedness

As of the Petition date, the Debtors’ primary long term debt obligations consisted of approximately $73.89m plus interest, fees and other costs due to Wells Fargo under the Prepetition ABL Agreement…As of the Petition date, the Debtors estimate that they also have approximately $65.3mn of outstanding accounts payable owed to various trade vendors, suppliers and other parties.

DIP Financing

The Debtors have agreed a debtor-in-possession ("DIP") financing arrangements with prepetition lender Wells Fargo (NB: there was no third party interest) that is comprised of (i) a new money revolving credit facility of up to $12.2mn and (ii) a roll-up of all Prepetition ABL Obligations owed Wells Fargo beginning with a "creeping roll-up" from entry of an interim DIP order and finishing with the roll-up of the balance with a final DIP order.

Key Prepetition Shareholders

As noted in the structure chart below, the Debtor topco is Heavy Metal, Inc. which is owned by the following four trusts:

About the Debtors

The Bella Declaration provides: "Headquartered in Chatsworth, California, the Company is a distributor, manufacturer and retailer of indoor and outdoor home furnishings with distribution throughout ecommerce channels including partners such as Amazon, Wayfair, Overstock, Target and Home Depot, fulfilling direct to consumer orders from its distribution centers. Family-owned since its founding in 1992, the Company designs, markets and sells its products under several brands including Christopher Knight Home, NobleHouse, LePouf, OkiOki, Best Selling and GDFStudio, and leases offices, warehouses, and other sites in California, Georgia and Texas.

The Company also sells through wholesale channels, primarily to the Big Box retailers – TJMaxx, Home Goods, Marshalls, Ross Stores and others; such arrangements comprise only approximately 1% of the Company’s revenues. The Company also maintains a physical outlet store.

The Company has a broad base of over 50 suppliers, supported by an internally developed and maintained IT system that allows for end-to-end inventory tracking supporting available inventory, review responses and delivery management. The Company sources globally from China, Malaysia, Vietnam and India, and operated a bean bag and pouf manufacturing arm in the United States. The Company has over two million square feet of in its distribution centers to hold inventory and is supported by its trucking/logistics operation, NH Services, Inc."

Corporate Structure Chart

 

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The post Noble House Home Furnishings, LLC – E-Commerce/Big Box Furniture Distributor Buffeted by Pandemic Boom/Bust Cycle Files for Bankruptcy with $74mn of Funded Debt and $65mn of Trade Debt; GigaCloud Technology to Serve as Stalking Horse in Going Concern Sale appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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