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January 4, 2021 – The Court hearing the Francesca’s Holdings Corporation cases issued a final order authorizing the Debtors to (i) access the $10.0mn balance of a $25.0mn debtor-in-possession (“DIP”) financing facility and (ii) continue using cash collateral [Docket No. 262]. On December 8, 2020, the Court had authorized the Debtors to access a first $15.0mn tranche of the DIP financing on an interim basis [Docket No. 91].
The DIP financing is being provided by prepetition lender Tiger Finance, LLC (“Tiger”), which is set to benefit from roll-up provisions which have the Debtors’ receipts applied to the $13.5mn entirety of outstandings under the Debtors’ prepetition credit facilities and then continue with the payment of DIP borrowings and DIP-related expenses.
Those receipts are to be very much in the control of Tiger, which will be collecting them in its role as store closing consultant and then using them to repay what it has provided the Debtors in the guise of prepetition and DIP financing (the latter to be used to purchase inventory which Tiger is to sell) and then ultimately to pay Chapter 11 fees (including to itself).
The Debtors’ requesting motion [Docket No. 32] explains, “In the midst of the ongoing COVID-19 pandemic, which continues to present unprecedented challenges to brick and mortar retailers across the country, the Debtors are pleased to seek authorization of a $25 million non-amortizing DIP Facility that will finance these chapter 11 cases and bring the sale process discussed in detail in the Clarke Declaration and the Bidding Procedures Motion to a successful conclusion. The DIP Facility will provide the Debtors with the financing necessary to make all payments authorized under all first day motions (including all amounts owed to the Debtors’ 4,540 employees), a fair timeline for soliciting and evaluating bids for the Debtors’ assets, and the ability to consummate the highest and best offer received. The DIP Facility also is the product of weeks of arm’s-length, hard-fought negotiations with the DIP Lender and the DIP Agent and, for the reasons set forth the in the Clarke Declaration, the Debtors firmly believe that entry into the DIP Facility is consistent with an exercise of sound business judgment. Accordingly, the Debtors respectfully request that the Court approve the entry of the Interim Order and the Final Order."
Key Terms of the DIP Facility:
- Borrowers: FCI and FSC
- Guarantors: FHC and F-LLC
- Lender: Tiger Finance, LLC and "Lenders party hereto"
- Agent: Tiger Finance, LLC
- Amount and Facility: $25.0mn senior secured, superpriority revolving credit facility; $15.0mn to be made available following entry of the Interim Order subject to the Approved DIP Budget and the Borrowing Base.
- Interest Rate: 30-day LIBOR plus 7.0%; If 30-day LIBOR is not available, then the Applicable Rate will be Prime Rate, plus 6.0%.
- Default Interest: 5% above applicable rate (see 2.13(d) of credit agreement)
- Outside Maturity Date: January 31, 2021
- New Money: Nominally $25.0mn, although all of the Debtors' receipts will be first used to reduce $13.5mn of prepetition loan obligations (see Roll-Up, below)
- Roll-Up: Upon entry of the Interim Order, all of the Borrowers’ receipts (including credit card and retail receipts, and e-commerce sales) will be applied to reduce, on a dollar-for-dollar basis , the Prepetition Obligations as follows: (A) first, the First Lien RCF Obligations until such obligations are indefeasibly paid in full; and (B) second, the Second Lien Term Loan Obligations until such obligations are indefeasibly paid in full. The roll-up provisions don't, however, end there. After the prepetition debt is paid off, receipts will continue to be collected to pay down the DIP itself and then DIP-related expenses.
- Use of Proceeds: (i) fees and expenses relating to the DIP Facility during the pendency of the Chapter 11 Cases, (ii) Adequate Protection Payments, (iii) in accordance with the Approved DIP Budget (subject to Permitted Budget Variances), (a) post-petition operating expenses of the Debtors incurred in the ordinary course of business (including of purchases of inventory), (b) costs and expenses of administration of the Chapter 11 Cases, including payment of allowed professional fees and funding of the Professional Fee Reserve, (c) payment of transaction fees in connection with any asset sale, (d) prepetition and postpetition fees and expenses of the attorneys and advisors for the Prepetition Secured Parties, the DIP Lenders , the DIP Agent, and Chase (as defined below), and (e) other amounts as specified in the Approved DIP Budget.
- DIP Facility Fees: $600,000 which will be fully earned upon entry of the Interim Order and execution of the DIP Credit Agreement, payable as follows: (1) $300,000 on the date of the initial advance of revolving loans under the DIP Credit Agreement and (2) $300,000 upon the earlier of (x) the entry of the Final Order, or (y) termination of the DIP Facility. A portion of these fees may be refunded to the Debtors if the DIP Lenders provide either financing to the Successful Bidder in connection with the Sale Process or exit financing to the Debtors in connection with a chapter 11 plan of reorganization.
- DIP Agent Fee: $25,000
- Expense Reimbursement: The Debtors are required to pay all reasonable and documented expenses and disbursements of all professionals of the DIP Agent and the DIP Lender as provided in the DIP Credit Agreement.
- Milestones: The Debtors will be required to achieve numerous milestones related to the Chapter 11 Cases, many of which relate to the Sale Process, including:
- Filing of the Debtors’ requests for approval of the First Day Orders on or before the date that is 1 day after the Petition Date.
- Entry of an order authorizing approval of the Assumption Motion within 3 business days of the Petition Date.
- Entry of the Interim Order within 3 business days of the Petition Date;
- Entry into a “stalking horse” agreement for the Permitted Sale Transaction on or before January 6, 2021.
- Entry of the Final Order, and an order approving the Stalking Horse Bid and the Bidding Procedures Motion within 35 days of the Petition Date.
- Conducting an auction to determine a winning bidder for a Permitted Sale Transaction within 43 days of the Petition Date.
- Entry of the Bankruptcy Sale Order approving the Permitted Sale Transaction within 48 days of the Petition Date.
- Closing of the Permitted Sale Transaction within 49 days of the Petition Date
As of the Petition date, the Debtors’ funded debt totals approximately $13.5mn, comprised of the outstanding borrowings under the Prepetition Revolving Credit Agreement and the Prepetition Term Loan Credit Agreement (each as defined below).
- Asset Based Revolving Credit Facility: The Debtors are party to a May 2018 prepetition revolving credit agreement with Tiger Finance, LLC serving as administrative agent, which provided for aggregate revolving commitments of $40 million (the "Prepetition Revolving Credit Agreement"). On May 1, 2020, the Debtors entered into a letter agreement to obtain a waiver from their lenders of any default or event of default arising from their failure to (a) deliver annual audited consolidated financia l statements for the fiscal year ended February 1, 2020 without a “going concern” or a like qualification or exception and (b) pay rent on leased locations for the months of April, May, and June 2020. That letter agreement contains certain conditions and covenants, including that, in the case of the First Revolving Letter Agreement, the Debtors were required to use the entire $10.7 million income tax refund requested under the Corona Aid, Relief and Economic Security Act (the “CARES Act”) to repay any then outstanding borrowing. The Debtors went into cash dominion under the prepetition credit agreements on November 25, 2020 and Chase began sweeping the Debtors’ cash receipts on a daily basis. Cash receipts will continued to be swept daily to the DIP Agent, to be applied in the manner provided in the DIP Credit Agreement and Interim Order.
On December 1, 2020, Tiger Finance, LLC (“Tiger”) purchased and assumed all outstanding loans and commitments of the sole existing lender under the Prepetition Revolving Credit Agreement pursuant to that certain Assignment and Assumption Agreement and was appointed as administrative agent under the Prepetition Revolving Credit Agreement. As of the Petition date, the Debtors had $3.5 million in borrowings outstanding under the Prepetition Revolving Credit Agreement.
- Term Loan Credit Agreement: the Debtors are party to an August 2019 term loan credit agreement (the “Prepetition Term Loan Credit Agreement”) with Tiger, as administrative agent. The Prepetition Term Loan Credit Agreement provides for an aggregate term loan of $10 million and matures on August 13, 2022 (the “Term Loan”). As of the Petition date, the Debtors had $10.0mn of outstanding borrowings under the Prepetition Term Loan Credit Agreement.
Initial DIP Budget
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