Quantcast
Channel: Daily Bankrupt Company Updates | Bankrupt Company News
Viewing all articles
Browse latest Browse all 4593

Noble House Home Furnishings, LLC – Court Approves $85mn Sale of Debtors’ Assets to Stalking Horse GigaCloud Technology Inc (Otherwise Fending Off Allegations Raised in Culper Research Short Seller Report)

0
0

October 25, 2023 – Further to a September 19th bidding procedures order [Docket No. 81] and an October 25th sale hearing, the Court hearing the Noble House Home Furnishings, LLC cases issued an order approving the sale of substantially all of the Debtors’ assets to GigaCloud Technology Inc. (the “Stalking Horse Bidder,” $85.0mn base opening bid*, their press release here) [Docket No. 190, with a Stalking Horse APA attached at Exhibit 2 to Docket No. 81]. The sale is slated to close by October 31st.     

*The purchase price is $85.0mn, subject to adjustment or holdback as set forth in the Stalking Horse Purchase Agreement, plus an additional $4.1mn to be allocated to Banc of America Leasing & Capital, LLC for Non-Automated Equipment, plus the assumption of certain liabilities.

On September 12th, GigaCloud issued a press release heralding the acquisition; their investment and PR teams have, however, more recently been compelled to turn their attention to fending off securities-related class action lawsuits (example here) triggered in large part by a damaging short seller report issued by Culper Research.

Case Status

On September 11, 2023, Noble House Home Furnishings, LLC and three affiliated debtors (“Noble House” 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 (including $73.9mn of funded debt owed to Wells Fargo and $65.3mn of trade debt owed mostly to Chinese and Vietnamese suppliers). 

At filing, 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," noted that "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.”

On September 12th, the Court hearing the Noble House Home Furnishings cases issued an order authorizing the Debtors to access $12.2mn of debtor-in-possession (“DIP”) financing in the form of a revolving credit facility from prepetition lender Wells Fargo Bank, N.A. on an interim basis.

On October 4th, the Court issued a final DIP order (leaving new money borrowing capacity at $12.2mn) and gave the go ahead to roll-up** the balance of Prepetition ABL Obligations.

**The interim order authorized the Debtors “to apply all collections and proceeds of DIP Collateral to reduce, on a dollar-for-dollar basis, the Prepetition ABL Obligations (the 'Creeping Roll-Up')” with all remaining outstanding Prepetition ABL Obligations converting into DIP Obligations upon entry of the final DIP order.

On October 20th, the Debtors notified the Court that, absent the receipt of any further qualified bids beyond that of the Stalking Horse Bidder, an auction scheduled for October 23rd had been cancelled.

The Bidding Procedures Motion

The motion [Docket No. 21] states, “The Debtors are seeking approval of the Bidding Procedures to establish a clear and open process for the solicitation, receipt, and evaluation of overbids on a timeline that allows the Debtors to consummate a Sale of substantially all of the Debtors’ Property that the Debtors believe is reasonable and will provide parties with sufficient time and information to submit a competitive bid. In formulating the Bidding Procedures and time periods set forth therein, the Debtors balanced the need to provide adequate notice to parties in interest and potential bidders with the need to run a fulsome, expeditious, and efficient marketing process. The Bidding Procedures are designed to generate the highest or otherwise best available recoveries to the Debtors’ stakeholders by encouraging prospective bidders to submit competitive, value-maximizing bids. The Bidding Procedures are designed to allow the Debtors sufficient time to conduct a Sale and potentially an Auction while simultaneously ensuring that the Debtors maintain sufficient runway in these chapter 11 cases.”

Marketing Process

The Debtors’ sale process for a going-concern sale of substantially all the Debtors’ assets has been managed by their investment banker, Lincoln, which was initially hired by the Debtors in February 2023 to run a refinancing process for the Debtors. In July 2023, Lincoln commenced a robust marketing process, assisting the Debtors with the identification parties interested in consummating a sale transaction. Lincoln contacted parties it believed were most likely to be interested in the Debtors’ business and assets.

Lincoln has worked closely with the Debtors’ management to analyze the Debtors’ financial position and outlook, prepare marketing and diligence materials (including a Confidential Information Presentation), and populate an electronic data room (the “Data Room”) for prospective purchasers interested in purchasing all or any portion of the Debtors’ assets. Commencing in July 2023, Lincoln contacted approximately 60 potential buyers, composed of 47 financial firms and 13 strategics, including some with private equity backing. To date, 23 of these parties have signed non-disclosure agreements and have received access to the comprehensive Data Room. Five of those parties held meetings with the Debtors’ management, and four conducted site visits. Ultimately, three parties submitted preliminary, non-binding Indications of Interest (IOIs) for substantially all assets.

The Debtors determined the Stalking Horse Purchaser’s proposal represented the best proposal they received. On September 11, 2023, the Debtors entered into the Stalking Horse Purchase Agreement with the Stalking Horse Purchaser."

The Bella Declaration adds: "…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."

Key Terms of Stalking Horse APA

  • Sellers: Noble House Home Furnishings, LLC
  • Purchaser: GigaCloud Technology Inc.
  • Purchase Price: $85,000,000, subject to adjustment or holdback as set forth in Section 2.6 of Stalking Horse Purchase Agreement, plus an additional $4,100,000 to be allocated to Banc of America Leasing & Capital, LLC for the Non Automated Equipment.
  • Purchased Assets: Substantially all of the Debtors’ assets relating to the operation of their Business (as defined in the Stalking Horse Purchase Agreement), including without limitation, personal property, supplies and inventory, intangible property, including intellectual property rights and customer information, accounts and notes receivable, rights under contracts, permits, warranties with respect to any purchased assets, books and records, and claims and causes of action, including preference and avoidance claims, provided that the Stalking Horse Purchaser agrees to waive and not to pursue any preference and avoidance claims, equity interests in Noble Home Furnishings Canada, Inc., Noble House Home Furnishings UK Limited, Noble House Home Furnishings, S. De R.L. De C.V., Noble House Home Furnishings (HK) Limited, Noble House Home Furnishings Vietnam Company Limited, Noble House Home Furnishings (MY) Sdn. Bhd, Fujian Baimei Electronic Commerce Co., Ltd. and Baimei (Fujian) Network Information Technology Co., Ltd.
  • Bid Protections: (i) a $3.4mn break-up fee, (ii) a $55k Buyer Expense Reimbursement.

General Background

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."

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

 

Read more Bankruptcy News

The post Noble House Home Furnishings, LLC – Court Approves $85mn Sale of Debtors’ Assets to Stalking Horse GigaCloud Technology Inc (Otherwise Fending Off Allegations Raised in Culper Research Short Seller Report) appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


Viewing all articles
Browse latest Browse all 4593

Latest Images

Trending Articles





Latest Images