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February 23, 2021 – Belk Inc. and 17 affiliated Debtors (“Belk” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 21-30630. The Debtors, retailers with 291 stores across 16 southeastern states, are represented by Jackson Walker LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as legal advisor, (ii) Lazard as financial advisor, (iii) Alvarez & Marsal North America, LLC as restructuring adviser and (iv) Prime Clerk LLC as claims agent.
The Debtors’ lead petition notes between 50,001 and 100,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn.
- Belk to File Prepackaged Plan by February 24th and Emerge by February 26th
- Debtors Cite Shift away from In-store Shopping and COVID-19 as Leading to 32% Drop in Annual Topline Sales
- RSA Backed by Sponsor Sycamore Partners, 75% of Holders of First Lien Term Loan Debt Lenders and 100% of Second Lien term Loan Debt
- Prepackaged Plan to Reduce Debt by $450mn with Remaining Debt Maturities Extended to July 2025
- Sycamore, KKR and Blackstone to Contribute $225mn in New Capital
In a declaration filed in support of the Debtors' Chapter 11 filings (the "Langley Declaration" [Docket No. 8]), the Debtors' chief financial officer William Langley stated, "Following an appropriate notice period, the Debtors commenced these Chapter 11 Cases to implement this restructuring through their joint prepackaged plan of reorganization (the 'Plan'). If the Plan is not confirmed on February 24, 2021, the Debtors’ lack of material cash or committed interim financing, combined with the resulting termination rights under the Restructuring Support Agreement, would lead to significant disruption and uncertainty and could potentially result in a liquidation.
Because the Plan (a) has been accepted by Holders of approximately 99% of First Lien Term Loan Claims (Class 4), 100% of Second Lien Term Loan Claims (Class 5) and 100% of the equity interests in Debtor Fashion Holdings Intermediate LLC (Class 9) – the voting Class under the Plan and – (b) pays all other non-funded debt claims in full in the ordinary course, a stop in chapter 11 for anything more than 24 hours will serve not one stakeholder’s interest. On the contrary, absent confirmation today, the entire enterprise will be at risk, threatening severe damage to the business, the loss of approximately 17,000 jobs, the closing of 291 stores and the disappearance of a value maximizing — and fully consensual — restructuring."
In a February 8, 2021 press release, the Debtors advised that: "Belk today reaffirmed that it expects to complete its financial restructuring through an expedited 'pre-packaged, one-day' reorganization. The company expects to file for Chapter 11 on February 24, 2021, and anticipates that the confirmation hearing to approve the restructuring will be held on the same day.
Lenders holding 99% of Belk's first lien term loan and 100% of Belk's second lien term loan have now entered into the previously announced Restructuring Support Agreement (the "RSA"), evidencing near unanimous term loan lender support for Belk's "one-day" reorganization. The RSA enables Belk to raise $225 million of new capital, significantly reduce debt by approximately $450 million, and extend maturities on all term loans to July 2025.
Belk plans to continue normal operations throughout its financial restructuring. Under the RSA, suppliers will be unimpaired and will continue to be paid in the ordinary course for all goods and services provided to the company. Customers will continue to receive the quality merchandise and service they expect when shopping at Belk's stores across the Southeast and online at Belk.com.
Under the terms of the RSA, Sycamore Partners will retain majority control of Belk. Belk has secured financing commitments for $225 million in new capital from Sycamore Partners, leading global investment firms KKR and Blackstone Credit and certain existing first lien term lenders (the 'Ad Hoc First Lien Lender Group'). Belk has also secured an extension of the early consent deadline for additional lenders to provide commitments for the $225 million of new capital. The commitment deadline [was] extended to 4:00 p.m. Central Time on February 11, 2021, although additional commitments are not required for successful completion of the restructuring. Members of an ad hoc crossover lender group led by KKR Credit and Blackstone Credit (the 'Ad Hoc Crossover Lender Group') and other participating lenders will acquire a minority ownership in Belk.
On January 28, 2021, privately-held Belk Inc. published a Prepackaged Plan and a related Disclosure Statement.
In a January 26th press release, Belk announced that it had entered into a Restructuring Support Agreement (the "RSA," attached to the Disclosure Statement at Exhibit C) with its equity sponsor, Sycamore Partners, and holders of over 75% of its first lien term loan debt and 100% of its second lien term loan debt; with the RSA detailing an agreed plan to recapitalize the business, including through eliminating approximately $450.0mn of debt and extending maturities on all term loans until July 2025.
The press release notes that Belk had "entered into a Restructuring Support Agreement (the 'RSA') with its majority owner, Sycamore Partners, a private equity firm specializing in consumer, retail and distribution investments, and holders of over 75% of its first lien term loan debt and holders of 100% of its second lien term loan debt on a plan to recapitalize the business, significantly reduce debt by approximately $450 million, and extend maturities on all term loans to July 2025. Under the terms of the RSA, Sycamore Partners will retain majority control of Belk. The retailer has received financing commitments for $225 million in new capital from Sycamore Partners, leading global investment firms KKR and Blackstone Credit, and certain existing first lien term lenders (the 'Ad Hoc First Lien Lender Group'). Pursuant to the RSA, members of an ad hoc crossover lender group led by KKR Credit and Blackstone Credit (the 'Ad Hoc Crossover Lender Group') and other participating lenders will acquire a minority ownership in Belk."
Plan and RSA Overview
The Langley Declaration explains, "The restructuring support agreement attached hereto as Exhibit C (the 'Restructuring Support Agreement') provides for a realignment of the capital structure through a deleveraging of $450 million of First and Second Lien Term Loan debt and the infusion of $225 million in new money to fund the business going forward.
The Restructuring Support Agreement is supported by holders of approximately 99% of the Debtors’ First Lien Term Loans and holders of 100% of the Second Lien Term Loans. It is also supported by the Debtors’ Sponsor – the investment fund managed by, and other Affiliates (excluding any of the Debtors or Reorganized Debtors) of Sycamore Partners Management L.P. in their capacity as indirect holders of interests (collectively, ('Sycamore'), whose retention of majority ownership of reorganized Belk was important to the other parties due to Sycamore’s valuable multi-channel retail experience and expertise.
The Restructuring Support Agreement allows Belk to satisfy all trade, customer, and other non-funded debt obligations in full, maintain its approximately 17,000 workforce and keep open all 291 stores. Importantly, the Restructuring Support Agreement requires confirmation of the Plan on the Petition Date."
- Deadline to Commence Solicitation: January 26, 2021
- Voting Deadline: February 5, 2021
- Plan Confirmation Hearing: February 24, 2021
- Deadline for Plan Effectiveness: February 26, 2021
The following is a summary of classes, claims, voting rights and expected recoveries showing changes in bold (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Projected claims are $83,834,000 and estimated recovery is 100%.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Projected claims are $14,800,000 and estimated recovery is 100%.
- Class 3 (“ABL Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Projected claims are $383,000,000 and estimated recovery is 100%.
- Class 4 (“First Lien Term Loan Claims”) is impaired and entitled to vote on the Plan. Projected claims are $999,400,000and estimated recovery is 55.1% – 81.1%FN. Each Holder of a First Lien Term Loan Claim will receive, in full and final satisfaction of such Claim New FLSO Loans in a principal amount equal to 55.0% of such Holder’s Allowed First Lien Term Loan Claim; provided, that all accrued and unpaid amortization and interest (at the default rate) on the principal amount of such Claim through the Petition Date will be paid in full in Cash on the Effective Date.
- Class 5 (“Second Lien Term Loan Claims”) is impaired and entitled to vote on the Plan. Projected claims are $550,000,000 and estimated recovery is 35.0%FN. Eeach Holder of a Second Lien Term Loan Claim will receive, in full and final satisfaction of such Claim (i) New FLSO Loans in a principal amount equal to 15.0% of such Holder’s Second Lien Term Loan Claim;(ii) New Second Lien Term Loans in a principal amount equal to 20.0% of such Holder’s Second Lien Term Loan Claim; and (iii) its Pro Rata share of 34.9% of the New Common Stock; provided, that all accrued and unpaid interest (at the default rate) on the principal amount of such Claim through the Petition Date will be paid in full in Cash on the Effective Date.
- Class 6 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Projected claims are $443,000,000 and estimated recovery is 100%.
- Class 7 (“Intercompany Claims”) is unimpaired/impaired deemed to accept/reject and not entitled to vote on the Plan.
- Class 8 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 9 (“Interests" [in Fashion Holdings Intermediate LLC]) is impaired and entitled to vote on the Plan. On the Effective Date, all Interests will be Reinstated, subject to dilution on account of the new Common Stock, and the legal, equitable, and contractual rights to which holders of Interests are entitled shall otherwise remain unaltered.
FN: The estimated recovery percentages for Classes 4 and 5 are based on the face value of new debt consideration and are not inclusive of (a) the proposed treatment of accrued and unpaid interest at the default rate on such principal amount of Claims through the Petition Date, which will be paid in full in Cash on the Effective Date as set forth in the Plan; and (b) the value of New Common Stock. To the extent the New Common Stock outstanding on the Effective Date is valued at book value, the estimated recovery range for Class 4 Claims would be 55.1% – 86.4% and the estimated recovery range for Class 5 Claims would be 68.9% – 73.7%, in each case, excluding accrued and unpaid interest at the default rate.
The following documents were attached to the Disclosure Statement:
- Exhibit A: Plan of Reorganization
- Exhibit B: RSA
- Exhibit C: Financial Projections
- Exhibit D: Liquidation Analysis
Exit Capital Structure
The capital structure of the Reorganized Debtors upon the Plan Effective Date will consist of the following:
(i) a first lien term loan credit facility (the “New First Lien Credit Facility”), which will be available to be drawn or otherwise made available to the Borrower (as defined in Exhibit 1 hereto) on the Plan Effective Date and will be comprised of:
(ii) a $300 million term loan tranche, consisting of (A) $225 million of new money term loans (the “New FLFO New Money Loans”) and (B) $75 million of new term loans rolled up from the First Lien Term Loans (the “New FLFO Roll-Up Loans”, and together with the New FLFO New Money Loans, the “New FLFO Loans”); and
(a) up to $822 million (or to be reduced to $815 million after giving effect to any amortization payments on or prior to the the Plan Effective Date) exchange term loan tranche, secured by a first-priority lien on a “second-out” priority basis (“New FLSO Loans”);
(b) a second lien term loan credit facility (the “New Second Lien Credit Facility”, together with the New First Lien Credit Facility, the “New Credit Facilities”), which will be available to be drawn or otherwise made available to the Borrower on the Plan Effective Date and will be comprised of a $110 million exchange term loans, secured by a second-priority lien (“New Second Lien Term Loans”, together with the New First Lien Term Loans, the “New Term Loans”);
(iii) the ABL Facility; and
(iv) new common stock issued by the parent entity of the Reorganized Debtors on the Plan Effective Date, after giving effect to the Restructuring Transactions, which for the avoidance of doubt may be Fashion Holdings Intermediate LLC or a new entity formed to acquire, directly or indirectly, substantially all of the assets of the Company Parties (“Reorganized Belk Holdings”, and the new common stock or comparable equity interests issued by Reorganized Belk Holdings, the “New Common Stock”), resulting in the following pro forma ownership percentages: (a) 50.1% held by Fashion Holdings LLC, following the issuance of the New Common Stock to be issued pursuant to clauses (b) and (c) below, (b) 34.9% held by holders of Second Lien Term Loan Claims, and (c) 15% held by Existing Lenders that elect to fund their pro rata share of $125 million of the New FLFO New Money Loans.
Events Leading to the Chapter 11 Filings
The Debtors' Disclosure Statement notes: "Belk, along with many other retail companies, has faced a challenging commercial environment in recent years brought on by increased competition among retailers and an ongoing shift away from in-store shopping. Given Belk’s sizable store portfolio — with approximately 291 stores across 16 states—and its associated operating expenses, the business has relied heavily on physical consumer traffic, and resulting sales conversion, to meet sales and profitability goals. Amid these macroeconomic headwinds, Belk has taken proactive measures to remain competitive, including expanding its e-commerce platform, closing underperforming stores and streamlining its workforce.
Additionally, between May 2019 and October 2019, Belk entered into certain amendments to the ABL Credit Agreement, the First Lien Term Loan Credit Agreement and the Second Lien Term Loan Credit Agreement to extend the maturity date of a substantial portion of the funded debt obligations under the facilities. Prior to the COVID-19 pandemic, Belk had a manageable liquidity cushion and was proactively taking steps to right-size its operations and further improve the long-term health of its balance sheet.
The restrictions resulting from legally imposed measures, combined with radically altered behavior by consumers, precipitated an unprecedented decline in economic activity. Demand for discretionary retail products has plummeted during the COVID-19 pandemic as consumers prioritize — with good reason — their health and maintaining a source of income. In this environment, most discretionary retail products are an unnecessary luxury for many consumers. Additionally, online sales are not as profitable as store sales due to the cost of shipping. As a result of these and other factors, the Debtors’ sales have materially declined from forecasts. The Debtors’ top-line sales were down 32 percent year-over-year for the period commencing the third week of March 2020 through December 2020.
While COVID-19 is not the sole cause of Belk’s current liquidity crisis, the pandemic has undoubtedly been a catalyst for Belk’s declining liquidity position and its current inability to satisfy upcoming debt service obligations."
As of January 25, 2021, the Debtors have approximately $1.91bn of funded debt (exclusive of outstanding letters of credit), consisting of:
- $357.50mn outstanding in principal amount under the ABL Facility;
- $999.45mn outstanding in principal amount under the First Lien Term Loan Facility; and
- $550.00mn outstanding in principal amount under the Second Lien Term Loan Facility.
The Debtors also have approximately $83.83mn of outstanding capital lease obligations.
FN8 Exclusive of approximately $25.5mn of outstanding letters of credit.
Bear Parent Inc. owns 100% of the equity interests in Belk.
Liquidation Analysis (please see Exhibit D to the Disclosure Statement for notes)
About the Debtors
Charlotte-based Belk, Inc., a privately-owned department store, opened its first store in 1888, beginning a legacy of selling great products at great prices, treating customers like family and giving back to the community. Today, Belk serves customers at nearly 300 Belk stores in 16 Southeastern states, at belk.com and through the mobile app. For over 130 years, Belk has proudly put customers and community at the center of what they do, supporting local charities, organizations and families when they need it most. For more information visit https://newsroom.belk.com/.
About Sycamore Partners
Sycamore Partners is a private equity firm based in New York. The firm specializes in consumer, distribution and retail-related investments and partners with management teams to improve the operating profitability and strategic value of their business. With approximately $10 billion in aggregate committed capital raised since its inception in 2011, Sycamore Partners' investors include leading endowments, financial institutions, family offices, pension plans and sovereign wealth funds. For more information on Sycamore Partners, visit www.sycamorepartners.com.
Corporate Structure Chart
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