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November 14, 2019 – The Court hearing the Destination Maternity Corporation case issued an order approving bidding procedure for the sale of assets [Docket No. 253] and scheduled sale hearing for December 12, 2019. Significantly, the order preserves the expedited auction/sale timetable which culminates in a December 12th sale hearing.
The order includes one significant change, the removal of section 18 which Judge Brendan Shannon has struck out and initialed himself. That section had presumed the extension of an interim cash collateral order and the agreement of an adequate protection package demanded by prepetition lenders Wells Fargo & Co. and Pathlight Capital LLC, an extension that has been delayed following tensions with those lenders (reportedly near resolution) and that will be considered at a hearing scheduled for November 22nd. Elements of the proposed adequate protection package had also drawn fire from the Debtors' Official Committee of Unsecured Creditors (the "Creditors' Committee") which was not happy with provisions which would obligate the Debtors to use any sale proceeds to repay senior lenders without regard for the Debtors' estates as a whole [Docket No. 210].
The Creditors' Committee was joined by numerous landlords in questioning the accelerated auction/sale timetable (the landlords actually objecting to the timetable and the Creditors' Committee raising an eyebrow in its objection to use of sale proceeds); especially given the absence of an identified stalking horse bidder. The tension over the pace of the sale process is clear: Retail businesses, dependent on accessing fresh stock from vendors selling on credit and mindful of expensive employee and lease costs, have a particular need for speed in bankruptcy, especially in the run-up to a holiday season. All the involved parties want these Chapter 11 cases to move quickly, but then again no one wants to bolt the barn door slammed shut before a stalking horse has even had a chance to appear.
In their bidding procedures motion [Docket No. 106], the Debtors had noted that "Five credible interested parties submitted non-binding bids prior to the Petition Date;" so far the Debtors have failed to update on those prospective bidders. The Creditors' Committee perhaps summed up the shared concern over the present uncertainty of the asset sale process, noting: "The Committee is hopeful that the sale process, though expedited, will result in a value maximizing transaction. However, to date, no stalking horse bidder has been identified, and the results of any such Auction and sale process are far from known." In any event, these objections have been brushed aside; the accelerated timetable providing the benefit of requiring the Debtors to provide clarity as to sale prospects in short order…one way or another.
Prospective bidders may bid (including credit bid) for part or all of the Debtors assets and will be required to file a draft asset purchase agreement blacklined against the form agreement that is to be provided by the Debtors prior to the proposed bid deadline (now set for December 5th). Any bidder protections will have to be agreed with the Debtors' pre-petition lenders and the Debtors' Committee of Unsecured Creditors and then approved by the Court. Any credit bidders will have to include a cash component to cover payment of secured debt that sits higher up the pecking order.
The Debtors' bidding procedures motion [Docket No. 106] stated: “The Debtors believe that pursuing a comprehensive marketing process a sale transaction is the best opportunity to maximize value for the benefit of all their stakeholders. As detailed in the First Day Declaration and the Augustine Declaration, with the backing of its funded debt holders, the Debtors' investment bank. Greenhill &. Co., LLC (‘Greenhill’), launched a robust, but accelerated marketing process in early September that requested indications of interest by mid-October. On September 2, 2019, Greenhill began outreach to more than 170 potential interested parties. Of these parties, approximately 34 parties entered into confidentiality agreements with the Debtors and received a copy of the Debtors' confidential information memorandum (‘CIM’). Following receipt of the CIM, several potential counterparties requested additional information and received access to a virtual data room and/or conducted in-person meetings with the Debtors' management or telephonic diligence meetings with Greenhill. Five credible interested parties submitted non-binding bids prior to the Petition Date. The Debtors commenced these chapter l1 cases, in part, to continue the marketing effort and seek to consummate a Transaction that will maximize value for all stakeholders and position the business for long-term success.
The Debtors seek to establish the bidding procedures to govern the completion of the marketing process in accordance with the timeline required under the Milestones – a timeline the Debtors believe is workable given their substantial prepetition marketing efforts, described above. The Bidding Procedures facilitate an orderly, value-maximizing Auction, thereby optimizing recoveries for all parties in interest. The Bidding Procedures provide for substantial flexibility with respect to the structure of any Transaction -e.g., the sale of all or only some of the Debtors' assets-and allow the Debtors to select, in consultation with the Consultation Parties, one or more parties to serve as a stalking horse bidder (a ‘Stalking Horse Bidder’) and provide Bid Protections thereto if the Debtors believe in an exercise of their business judgement, and subject to Court approval, that doing so will maximize the value of their estates. The Bidding Procedures also establish assumption procedures to facilitate the fair and orderly assumption and assignment of certain executory contracts in connection with any sale transaction, and the cure of any defaults under such executory contracts pursuant to section 365 of the bankruptcy Code.”
- Bid Deadline: December 5, 2019
- Auction: December 9, 2019
- Sale Objection: December 6, 2019
- Sale Hearing: December 12, 2109
About the Debtors
The Debtors are “a leading designer and omni-channel retailer of maternity apparel in the United States, with the only nationwide chain of maternity apparel specialty stores, as well as a deep and expansive assortment available through multiple online distribution points, including our three brand-specific websites. As of February 2, 2019, we operate 1,012 retail locations, including 458 stores in the United States, Canada and Puerto Rico, and 554 leased departments located within department stores and baby specialty stores throughout the United States and in Puerto Rico. We also sell our merchandise on the Internet, primarily through our Motherhood.com, APeaInThePod.com and DestinationMaternity.com websites. We also sell our merchandise through our Canadian website, MotherhoodCanada.ca, through Amazon.com in the United States, and through websites of certain of our retail partners, including Macys.com. Our 458 stores operate under three retail nameplates: Motherhood Maternity®, A Pea in the Pod® and Destination Maternity®. We also operate 554 leased departments within leading retailers such as Macy’s®, buybuy BABY® and Boscov’s®. Generally, we are the exclusive maternity apparel provider in our leased department locations.
We maintain our leading position through our two key brands, which enable us to reach a broad range of maternity customers. Through our stores and certain of our leased departments, we offer maternity apparel under one or both of our two primary brands, Motherhood Maternity ('Motherhood' or 'Motherhood Maternity') at value prices and A Pea in the Pod ('Pea' or 'A Pea in the Pod') at both contemporary and premium prices. Our A Pea in the Pod Collection® (“Pea Collection”) is the distinctive premier maternity apparel line within the A Pea in the Pod brand, featuring exclusive designer label product at premium prices.”
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