November 5, 2020 – The Debtors filed a motion to extend the periods during which they have an exclusive right to file a Plan and solicit acceptances thereof, through and including February 3, 2021 and April 5, 2021, respectively [Docket No. 707]. Absent the requested relief, the exclusive Plan filing and solicitation periods are scheduled to expire on November 5, 2020 and January 4, 2020, respectively.

The extension motion anticipates the filing of a Plan in "the coming weeks" following progress on open issues with "the U.S. Trustee, their creditor constituencies and certain third parties." These discussion follow the headlining event of these Chapter 11 cases, the $325.0mn sale of substantailly all of the Debtors' assets to a consortium comprised of Authentic Brands Group ("ABG") and SPARC Group LLC ("SPARC," itself comprised of mall owner Simon Property Group and ABG). That sale closed on August 31, 2020.

The extension motion explains, “The Debtors have made significant and material progress in these chapter 11 cases while managing through the challenging COVID-19 pandemic. Since commencing these chapter 11 cases, among other things, the Debtors (i) stabilized their operations by securing $80 million of interest-free and fee-free post-petition financing, (ii) oversaw a value-maximizing marketing process that led to the sale of substantially all of their assets associated with the Brooks Brothers® business for $325 million with the consent of the official committee of unsecured creditors (the 'Committee') and the Debtors’ senior secured creditors, (iii) sold several other noncore assets held by the Debtors’ estates for proceeds exceeding $15 million, (iv) established procedures and deadlines for asserting claims against the Debtors and (v) have otherwise been focused on an efficient administration of the Debtors’ estates for the benefit of creditors.

More recently, the Debtors have been in discussions with the Committee regarding the terms of a proposed chapter 11 plan and expect to file a chapter 11 plan, disclosure statement, and motion for approval of solicitation procedures in the coming weeks. By this Motion, the Debtors request reasonable incremental extensions of the exclusive periods so that they can finalize, file and prosecute a plan for the benefit of the Debtors’ creditors.”

The motion further states," In addition, the Debtors have made significant efforts to resolve open issues regarding numerous matters in these chapter 11 cases with the U.S. Trustee, their creditor constituencies and certain third parties. From constant e-mail correspondence to frequent telephone conferences, the Debtors and their advisors have maintained regular contact with parties on matters large and small. The Debtors’ efforts to promote consensus further support the extension of the Exclusive Periods. 

The Court scheduled a hearing on the motion for November 19, 2020, with objections due by November 12, 2020.

Sale Background

Further to an August 3rd bidding procedures order [Docket No. 285], the Debtors filed a notice (i) cancelling a scheduled August 12th auction and (ii) designating stalking horse SPARC Group LLC (“SPARC” ) as the successful bidder in respect of substantially all of the Debtors' assets. An amendment to SPARC's asset purchase agreement (the “APA”) which amends purchase price terms to reflect the new $325.0mn price tag (up from $305.0mn), is attached to the notice as Exhibit A [Docket No. 375]. The amendment also provides that the transaction would close on August 31st and conspicuously leaves in place a $10.25mn termination payment should the "Sellers enter into a definitive agreement with respect to a Competing Bid…"

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.

As part of the agreement, SPARC has committed to continue operating at least 125 Brooks Brothers retail locations. The bidders intend to preserve the iconic Brooks Brothers brand and to continue to serve the Company’s loyal customers.

SPARC is a global retail enterprise with extensive experience in both brick-and-mortar and eCommerce retail. SPARC provides design, manufacturing, distribution, and marketing expertise to other American heritage brands, including Aéropostale and Nautica.”

Not exactly the frothy result that some imagined in recent weeks as deep-pocketed suitors promised to bid for this retail icon. As we discuss below, there is more of a story here as to how stalking horse and debtor-in-possession ("DIP") SPARC managed to keep control of the sale process and a relative lid on its ultimate purchase price. Whether or not we get real insight on that story will likely depend on whether there remains further appetite to challenge the result.

Revised Purchase Price: The consideration for the Acquired Assets shall be (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.

Further Background

[As previously reported] August 11, 2020 – Multiple sources were reporting that Oaktree Capital/BlackRock-backed WHP Global had withdrawn from contention for the Debtors' assets, apparently leaving an open field for the SPARC Group, the Debtors' designated stalking horse; and owned by mall owner Simon Property Group ("SPG") and Authentic Brands Group ("ABG").

WHP Global, which owns the Joseph Abboud and Anne Klein brands, had promised to be an important factor at the Debtors' auction, initially scheduled for August 10th and delayed, in what appears to be a widely anticipated last-minute scramble, until August 11th. WHP Global Chairman Yehuda Shmidman had commented on the selection of SPARC as the stalking horse: “It’s early innings in the Brooks Brothers bankruptcy sale process. The next key date is the auction. Our company, WHP Global, backed by Oaktree Capital and BlackRock, is a bidder. We are big believers in the power of the Brooks Brothers brand, the global footprint and the management team. We’re looking forward to competing at the auction — that’s when the future of Brooks Brothers will be determined.” 

Early innings perhaps, but one of those innings had cost any further interested bidder $11.125mn, ie the aggregate of a $9.125mn break-up fee, an expense reimbursement up to $1.0mn and a minimum bid increment of $1.0mn. As important as that early inning may have been, this may turn out to be a story about extra innings.

For SPARC these are busy times. SPARC was also named the successful bidder for the bankruptcy assets of Lucky Brand Dungarees. Last year it teamed up with mall operator Brookfield Property Partners LP to buy Forever 21 Inc.

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