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December 24, 2020 – The Debtors filed their Plan of Liquidation and related Disclosure Statement [Docket Nos. 844 and 845].
The Plan filing comes nearly four months after the Debtors closed the $325.0mn sale of their assets to SPARC Group LLC. An exclusivity extension granted on November 18, 2020 [Docket No. 744] indicated that the Debtors were in the process of finalizing a Plan and, according to the extension motion, had been working "to resolve open issues regarding numerous matters in these chapter 11 cases with the U.S. Trustee, their creditor constituencies and certain third parties."
In a press release announcing the successful bidder, the Debtors noted that: “Authentic Brands Group (‘ABG’) and SPARC Group LLC (‘SPARC’) (or the ‘bidders’) were selected as the winning bidders in the Company’s competitive sale process after they increased their offer to $325 million for the vast majority of the Company’s global business operations as a going concern as well as its intellectual property portfolio."
The release specified that consideration for the Acquired Assets was "(i) an aggregate Dollar amount equal to (A) $325,000,000, minus (B) the amount of the Credit Bid (if any), plus (C) the Estimated Inventory Adjustment Amount; minus (D) the Customer Deposit Balance (such amount, the ‘Closing Date Purchase Price’), (ii) at the option of the DIP Lenders, an aggregate credit bid of all or any portion of the DIP Obligations (as defined in the DIP Order) (the ‘Credit Bid’ which, together with the Closing Date Purchase Price, as adjusted pursuant to Section 2.7, shall be the ‘Purchase Price’) and (iii) Buyer’s assumption of the Assumed Liabilities."
As part of the asset purchase agreement, SPARC committed to continue operating at least 125 Brooks Brothers retail locations.
Background and Overview of Plan
The Disclosure Statement [Docket No. 845] provides, “On August 3, 2020, the Bankruptcy Court entered an order approving the relief requested in the Bidding Procedures Motion [Docket No. 285] (the ‘Bidding Procedures Order’), including auction and sale procedures and bid protections for the stalking horse bidder (the ‘Bidding Procedures’). Following further negotiations, SPARC materially increased the consideration under the APA to $325 million, and the Debtors declared SPARC the successful bidder, cancelled the auction and sought Bankruptcy Court approval of the APA, subject to various adjustments. On August 14, 2020, the Bankruptcy Court approved the APA, and on August 31, 2020, the Debtors consummated the Sale Transaction.
The final phase in these chapter 11 cases is the confirmation and consummation of the Plan, pursuant to which the Debtors will distribute the remaining cash proceeds from the sale of their assets (the ‘Sale Proceeds’) to creditors in accordance with the absolute priority rule and section 1129 of the Bankruptcy Code, including by:
- providing that all Allowed Administrative Expense Claims, Priority Tax Claims or Other Priority Claims and Secured Claims are unimpaired by the Plan;
- distributing to holders of Allowed General Unsecured Claims (i) interests in a Liquidation Trust that will liquidate the Debtors’ remaining assets and make cash distributions to holders of Allowed General Unsecured Claims and (ii) interests in a Litigation Trust that will pursue certain potential estate causes of action for the benefit of holders of General Unsecured Claims.”
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 Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $[●] and the estimated recovery is [●]%. Holders will receive (i) a Pro Rata Share of the Liquidation Trust Beneficial Interests and (ii) a Pro Rata Share of the Litigation Trust Beneficial Interests.
- Class 4 (“Intercompany Claims”) is impaired, deemed to accept and not entitled to vote on the Plan.
- Class 5 (“Debtor Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 6 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
The Disclosure Statement attached the following exhibits [Docket No. 845]
- Exhibit A: Plan [Docket No. 844]
- Exhibit B: Debtors’ Organizational Structure
- Exhibit C: Liquidation Analysis (to be filed)
The hearing on approval of the adequacy of the Disclosure Statement is scheduled for January 26, 2021, with objections due by January 21, 2021 [Docket No. 846].
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Marotta Declaration”), Stephen A Marotta, the Debtors’ Chief Restructuring Officer (and a Senior Managing Director at Ankura), detailed the events leading to Brooks Brothers’ Chapter 11 filing. A familiar retail story in many respects, the Declaration points out that the Debtors have been particularly hard hit by COVID-19; as remotely working employees stopped buying office attire, even in normal times a discretionary purchase impacted by overall consumer confidence levels. The result has been a 76% drop in revenues generating a liquidity crunch further exacerbated by a related reduction of the borrowing base under their Prepetition ABL Facility….
In 2019 the Debtors asked PJ Solomon to advice on multiple strategic investment initiatives and transactions, including a potential sale of the Company. Unfortunately, as PJ Solomon progressed in discussions with potential investors, the impact of COVID-19 began to materialize. Beginning in late February 2020, the Debtors began to face unprecedented liquidity and operational challenges associated with the spread of COVID-19."
About the Debtors
Established in 1818, Brooks Brothers was the first American brand to offer ready-to-wear clothing and has continued throughout history with iconic product introductions including: seersucker, madras, argyle, the non-iron shirt and the original polo button-down collar. Over two centuries later, Brooks Brothers is proud to uphold the same traditions and values and to be the destination for ladies and gentlemen from every generation. Since its founding 202 years ago in New York, Brooks Brothers has become a legendary international retailer with over 250 stores in North America and 500 worldwide in 45 countries while maintaining a steadfast commitment to exceptional service, quality, style and value.
Corporate Structure Chart
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