Barneys New York, Inc. – Court Approves Long Extension of Liquidation Sales (or Rather of Exclusive Plan and Solicitation Periods)

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November 26, 2019 – The Court hearing the Barneys New York cases has extended the periods during which the Debtors have an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including April 2, 2020 and June 1, 2020, respectively [Docket No. 552]. The Court, perhaps unsurprisingly, given the intermingling of legitimate needs for exclusivity extensions (although perhaps not of 180-day duration as is the case with the solicitation period) and the whiff of unseemliness that has been attached to almost everything related to the Barneys' bankruptcy, declined to add comment as to its rationale for the order. 

When the Debtors' state that they need more time for "the wind-down process and transition of certain operations to the purchasers…likely [to] continue into the first quarter of 2020," they are clearly speaking less of bankruptcy professionals diligently plying their trade than the opportunity for a prolonged liquidation sale process which these extensions make possible. 

This "once in a lifetime" shopping opportunity has drawn howls of derision from New Yorkers, one commenter noting, "I don’t know what the increases will be over time but anything under 50% is not a sale. SFA [Saks Fifth Avenue] was already at 40-50% last week for pre-sale. Barneys is selling you the same goods at 5% off. That’s not even tax. This is also a quick lesson on Barneys not knowing the market" and Conan O'Brien turning the liquidation process into a gagline, "Barneys sale is FIVE Percent." The New York Times (more below) advised shoppers, "You’ll find a Chloé bag for $1,690, or $85 off the pre-sale price." FLASH update from on that Chloé bag. As part of a BLOWOUT, 5-day only, "total inventory" sale, shoppers will get another 10% off discounted prices (NB: "total inventory" notably excluding "selected cosmetics, fragrances and brands" ….so perhaps not the Chloé bag, but with the Debtors authorized to order/buy/add stock at the behest of Barney's new owners, there will be something for every shopper…and a few comedians. Who says exclusivity extensions have to be dull?

As we reported in respect of the Debtors' November 5, 2019 requesting motion [Docket No. 509]: "Although there is little doubt that the Debtors need, and will get, more time to move on from efforts devoted to their frantic debtor-in-possession ("DIP") and section 363 sale efforts, the exclusivity motion does tend to airbrush the Debtors list of 'accomplishments' to date, including obtaining that DIP financing (twice); engaging in a running battle with the providers of the second (supposedly better, pro-going concern) DIP financing who ended up credit-bidding that eye-wateringly expensive DIP financing in a bid that pushed the Debtors into liquidation; failing to actually find a going concern bidder (notwithstanding multiple protestations that one was just about to arrive on the scene); and, perhaps the most dubious for Debtors currently engaged in a store closing operations, stabilizing business operations.

The lengthy extensions, 120 days for Plan filing and 180 for Plan solicitation, will also raise some eyebrows. The Debtors claim to need this extra time to transition to the Purchasers. It probably should more explicitly state that it needs time to run lengthy store closing sales and to have sufficient time to slowly clear stock (and bring in new stock) at prices advantageous to the Purchasers." As the New York Times reports: "Days after Barneys New York was sold for pieces, the store-closing sales have started, with windows bearing signs that proclaim “Everything must be sold!” and in a smaller font: “Goodbuys, then goodbye!”

But a warning before you run out the door: It’s a very Barneys kind of sale.

You’ll find a Chloé bag for $1,690, or $85 off the pre-sale price. You could grab an Altuzarra sweater for $625.50, marked down from $695. Or you can wait and play chicken — the luxury retail version — with the liquidation specialists running the sales."

Yes those same liquidation specialists (B. Riley Financial) that provided the DIP financing.

The extension motion explained, “In three months since the Petition Date, the Debtors have secured $257 million in debtor-in-possession financing, stabilized their business operations, undertaken an extensive sale process for substantially all of their assets, and entered into a related stalking horse purchase agreement against which higher or better transaction alternatives were aggressively pursued. On October 31, 2019, the Court approved the stalking horse purchase agreement and related transactions. On November 1, 2019, the Debtors consummated the sale transaction. The Debtors now intend to bring these chapter 11 cases to conclusion in an orderly, efficient manner. To that end, the Debtors request an extension of the Exclusivity Periods.

The wind-down process and transition of certain operations to the purchasers…likely will continue into the first quarter of 2020. Meanwhile, the Debtors have begun developing the terms of a chapter 11 plan that could serve as a vehicle to conclude these chapter 11 cases. The Debtors therefore believe it is prudent to seek a 120-day extension of the filing exclusivity period.”

The Court scheduled a hearing to consider the motion for November 20, 2019, with objections due by November 18, 2019.

Further Background on Asset Sale 

[As previously reported] ….October 31, 2019 – Further to an October 31st sale hearing, the $271.4mn sale of substantially all of the Debtors' assets to stalking horse ABG-Barneys, LLC ("ABG-Barneys") has been approved. ABG-Barneys is an acquisition vehicle created by Authentic Brands Group ("ABG") which owns over 50 brands including Nine West, Nautica and Hickey Freeman. 

A sale order has yet to be issued (expected the morning of November 1st…[this occurred and sale order is at Docket No. 494]) and media reports suggest that there still remain several hours for a rival bid to emerge. This would appear to be wishful thinking for creditors (and shoppers) hoping to see a going concern bid materialize; and the much rumored bid of a consortium of investors led by Sam Ben-Avraham, the co-founder of the streetwear brand Kith, has had considerable time to make a heroic entrance. The Debtors have done much to stir this pot with a spokeswoman on record yesterday as pointing out that the sale isn’t final until it closes, one of multiple times that the Debtors have intimated that further bids might appear; this juxtaposed with the Debtors' choice of ABG-Barneys as stalking horse (and the machinations of debtor-in-possession ("DIP") lenders with a vested interest in shuttering Barneys, although initially woo-ing the Debtors with promises of going concern support), notwithstanding that ABG is widely understood to be interested in little more than the Debtors' intellectual property and likely to begin shutting stores as soon as the ink is dry on the November 1st order. 

This contradictory approach is largely explained by the fact that the Debtors are under considerable pressure from their DIP lenders (set to be rewarded with handsome fees) to get a sale done and have the DIP financing (plus fees) repaid. One of those DIP lenders, B. Riley Financial, is party to the ABG-Barneys asset purchase agreement, and is to serve as agent/consultant in planned store closing and liquidation sales in respect of unwanted assets. Clearly more fees on the table there as well.

For the Debtors, the cold calculations of the DIP lenders has come as something of a difficult lesson. In August, the Debtors jettisoned their first DIP financing deal ($75.0mn to be provided by Gordon Brothers and Hilco Global) and heralded the arrival of something which appeared much better and promised a going concern future; the Debtors announcing in press release "that the Company has secured approximately $218 million in new financing from Brigade Capital Management, LP ('Brigade Capital') and B. Riley Financial, Inc. (NASDAQ:RILY) ('B. Riley Financial') to facilitate a going concern sale process. This new agreement, which materialized earlier in the day, replaces the previously announced $75 million agreement with affiliates of Hilco Global and the Gordon Brothers Group and will refinance all of Barneys New York's existing secured indebtedness. The Court granted Barneys New York interim approval to immediately access $75 million of the $218 million in new financing from Brigade Capital and B. Riley Financial, which, combined with operating cash flow, will help Barneys New York to meet its go-forward financial commitments and continue operations."

The existence of at least one further serious bidder was noted in an October 10th filing, in which the Debtors accused their DIP lenders of trying to destabilize the Debtors' cases just as the Debtors were completing their search for a stalking horse bidder; a process then "reaching its conclusion with multiple bidders." As we noted then. "the choice of ABG-Barneys undoubtedly conveys the Debtors' own preferences as to the future of the Debtors' assets; an important consideration as the relative value of competing bids is presented by the Debtors to the Court for consideration (and as competing bids considers ABG-Barneys' apparent home court advantage). The accelerated auction and sale process (auction by October 24th and sale hearing by October 31st) suggest that the field of potential bidders is already well known to the Debtors who are under considerable pressure from their DIP lenders (to be rewarded with handsome fees) to get a sale done and have the DIP financing (plus) repaid. One of the Debtors' DIP lenders, B. Riley Financial, is party to the ABG-Barneys asset purchase agreement, and is to serve as agent/consultant in planned store closing and liquidation sales in respect of unwanted assets."

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