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[Developing Story] May 18, 2020 – Centric Brands Inc. and 34 affiliated Debtors (NASDAQ: CTRC; “Centric” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 20-22637. The Debtors, a "leading lifestyle brand collective" including more than 100 licensed brands, are represented by Gregg M. Galard of Ropes & Gray LLP. Further board-authorized engagements include (i) Alvarez & Marsal, LLC, (“A&M”) as financial advisors, (ii) JT Partners, Inc. as investment banker and (iii) Prime Clerk as claims agent.
The $688.0mn (principal) of second lien debt to be exchanged by Blackstone affiliates for equity in the emerged entity was issued as recently as October 2018 (credit agreement here). The financing was issued in connection with the $1.2bn acquisition by Differential Brands Group Inc. (renamed Centric Brands at that time) of Global Brands Group Holding Limited’s ("GBG") North American licensing business. GBG's licensed brands included Calvin Klein, Under Armour, Tommy Hilfiger, BCBG, Joe’s, Buffalo David Bitton, Frye, Michael Kors, Kate Spade, All Saints and Cole Haan, and also entertainment properties including Disney, Marvel and Nickelodeon. Blackstone currently holds approximately 44% of the Debtors' equity.
The Debtors’ lead petition notes between 25,000 and 50,000 creditors; estimated assets of $1.855bn and estimated liabilities of $2.014bn. Documents filed with the Court list the Debtors’ five largest unsecured creditors as (i) Peter Kim ($9.8mn convertible note claim), (ii) Product Development Patners ($9.5mn trade debt claim), (iii) Caite International Limited ($9.1mn trade debt claim), (iv) Jiangsu Guotai Guosheng Co. ($9.1mn trade debt claim) and (v) U.S. Customs and Border protection ($8.8mn trade debt claim). All 30 of the Debtors' top 30 unsecured claims are in excess of $2.0mn.
In a press release announcing the filing, Centric advised that it “has entered into a Restructuring Support Agreement ('RSA' or the 'agreement') with substantially all of the Company’s secured lenders, led by certain funds managed by Blackstone ('Blackstone'), Ares Management Corporation ('Ares'), and HPS Investment Partners ('HPS'), to recapitalize the Company, provide $435 million in debtor-in-possession financing and allow the Company to operate without interruption throughout the restructuring process.
Additionally, the agreement contemplates a timely emergence from the process with a plan to substantially reduce the Company’s funded second lien indebtedness by approximately $700 million, thereby positioning the business for future growth and success.
Under the terms of the RSA, Centric Brands expects to emerge from Chapter 11 as a private company. Blackstone will exchange second lien debt for equity interests in the reorganized company. Existing senior lenders Ares and HPS will retain their senior loan positions and will receive equity interests in the reorganized company."
Mr. Jason Rabin, the Debtors' CEO, commented. “The current crisis has significantly impacted companies across all sectors. The pandemic disrupted many of our wholesale accounts’ ordering and constrained our cash flow. However, we are confident that with added flexibility in our capital structure, we will be well-positioned for long-term success during this period and beyond. We thoroughly evaluated all possible strategic options to address this environment. After extensive review, we determined that partnering with our current lenders to pursue this path will result in a stronger financial position and more resources to support future growth, while allowing us to focus on serving key stakeholders.”
- Cede & Co: 23.259%
- GSO Capital Opportunities Fund III LP (ie Blackstone): 15.441%
- GSO CST III Holdco LP (ie Blackstone): 13.711%
- BTO Legend Holdings (Cayman) NQLP (ie Blackstone): 12.284 %
About the Debtors
Centric Brands Inc. (NASDAQ: CTRC) is a leading lifestyle brand collective that designs, sources, markets and sells high quality products in multiple segments, including kids, men’s and women’s apparel, accessories, beauty, and entertainment. The Company’s portfolio includes more than 100 iconic licensed brands, including for kids apparel, Calvin Klein®, Tommy Hilfiger®, Nautica®, Spyder® and Under Armour®; for men’s and women’s apparel, Joe’s Jeans®, Buffalo®, Hudson Jeans®; for accessories, Kate Spade®, Michael Kors®, All Saints®, Frye®, Timberland® and Jessica Simpson®; and for entertainment, Disney®, Marvel®, Nickelodeon® and Warner Brothers®, among others. Owned brands include Hudson®, Robert Graham®, Swims®, Zac Posen® and Avirex®. The Company’s products are sold primarily in North America through leading mass market retailers, specialty, and department stores, and online. Centric Brands has unparalleled expertise in product design, development and sourcing, retail and digital commerce, marketing, and brand building. The Company is headquartered in New York City and has offices in White Plains, Los Angeles, Greensboro, N.C., Toronto, and Montreal.
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