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July 29, 2021 – GBG USA Inc and nine affiliated Debtors (“GBG” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 21-11369 (Judge TBD). The Debtors, primarily engaged in operating the wholesale and direct-to-consumer footwear and apparel business of Hong Kong-based parent Global Brands Group Holding Limited in North America (itself part of Hong Kong's Fung Group), are represented by Rachel C. Strickland of Willkie Farr & Gallagher LLP. Further board-authorized engagements include (i) Ankura Consulting Group ("Ankura") as restructuring advisors, (ii) Ducera Partners as financial advisors and (iii) Prime Clerk as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. Exhibit C to the subsequently filed Caldwell Declaration [Docket No. 13] states that the Debtors had $1,601,173,753 in total assets and $1,628,917,901.62 of total liabilities as of June 30, 2021. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) KR Hollywood, LLC ($Undetermined disputed, unliquidated, contingent rent claim, (ii) Kenneth Cole Productions, Inc. ($6.0mn royalties claim) and (iii) Authentic Brands Group LLC ($3.6mn royalties claim).
In a press release announcing the filing, the Debtors advised that: “the North America wholesale business and certain subsidiaries and affiliates (together ‘GBG USA’) have commenced voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the Southern District of New York (the ‘Court’). The Group’s global Brand Management and Europe wholesale businesses are separate legal entities from GBG USA, not included in this filing and continue to maintain ongoing operations.
In conjunction with the filing, GBG USA has entered into an asset purchase agreement (‘APA’) with WH AQ Holdings LLC (as purchaser) and Hilco Brands LLC (as guarantor) (together, the ‘Stalking Horse Bidder’), pursuant to which the Stalking Horse Bidder will serve as the stalking horse bidder in a court-supervised sale process for GBG USA’s Aquatalia brand and business. The stalking horse bid provides a purchase price of $17.3 million and the APA is subject to higher or otherwise better offers, among other conditions.
GBG USA is also pursuing the sale of a substantial portion of its remaining assets, including Ely & Walker, AIRBAND, MagnaReady, Yarrow, b New York and JUNIPERunltd, in accordance with Section 363 of the U.S. Bankruptcy Code and court-approved bidding procedures.
These actions follow the recent sale of the Group’s South Korean Spyder business to Alpha Vista Investment Co., Ltd., the sale of Spyder USA’s inventory and related assets to Liberated-Spyder LLC, and the sale of Frye’s inventory and related assets to ABG Frye LLC.”
Global Brands Group CEO Rick Darling commented further: “Over the past eighteen months the retail landscape has been greatly impacted by COVID-19, creating hardships for us and many others across our industry. Our business has also been impacted by ongoing structural shifts in the retail industry, as well as persistent geopolitical tensions that have disrupted supply chains. These factors have been especially detrimental to GBG USA.
We have taken significant steps over the last year to strengthen GBG USA’s financial position while also conducting a thorough review of all strategic options for GBG USA and its brands. This process resulted in the successful sales of our South Korean Spyder retail operation, the inventory and related assets for two of our brands, Spyder and Frye, and an APA for our Aquatalia brand and business. As for GBG USA’s remaining assets, we determined that a Court-supervised process to facilitate a sale is the best course of action to maximize value for all stakeholders and address the financial position of GBG USA and the Group in a fair and transparent manner.”
Goals of the Chapter 11 Filing
The Caldwell Declaration (defined below) states, "the Debtors have commenced these chapter 11 cases to implement a sale of the Debtors’ fashion brands pursuant to section 363 of the Bankruptcy Code. This strategy is the foundation of these proceedings and is critical to maximizing recoveries for all creditors and preserving a significant number of jobs."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Caldwell Declaration”), Mark Caldwell, the Debtors’ chief financial officer, detailed the events leading to [Company]’s Chapter 11 filing. The Caldwell Declaration provides: “The Debtors enter bankruptcy running on fumes. Faced with the catastrophic effects of the global COVID-19 pandemic, industry-specific headwinds and other liquidity constraints, the Debtors had no choice but to file for bankruptcy in an effort to preserve — and maximize — value for their creditors.
To that end, the Debtors have commenced these chapter 11 cases to implement a sale of the Debtors’ fashion brands pursuant to section 363 of the Bankruptcy Code. This strategy is the foundation of these proceedings and is critical to maximizing recoveries for all creditors and preserving a significant number of jobs. This strategy is also the result of extensive deliberation. Under the direction of a special committee of the Debtors’ board of directors comprised of three independent directors, the Debtors’ game plan has been developed with great care, thought and planning over the past several months.
Faced with significant liquidity pressures, the Debtors retained advisors over one year ago to explore a wide range of strategic options. At that time, it appeared that an out-of-court-restructuring was most likely. When it became apparent that the Debtors could not survive as a going concern enterprise, beginning in May 2021, the Debtors and their advisors began actively marketing the Debtors’ assets for sale in an organized prepetition bidding process, contacting over 45 potential buyers, entering into 30 confidentiality agreements and receiving 8 indications of interest to acquire all or certain portions of the Debtors’ business. In the ensuing months, the Debtors and their advisors worked with interested parties to provide diligence and negotiate the potential bids.
The results of these efforts have been fruitful. First, in the weeks leading up to the Petition Date, the Debtors successfully negotiated asset sales related to two of the brands in their portfolio — Spyder and Frye. The decision to sell these assets was the byproduct of the robust marketing process described above, extensive negotiations with bidders and their advisors, and the determination by the board’s special committee that the final bids represented the best offers and that a further protracted marketing process (including one that straddled into the bankruptcy cases) would only result in a lower offer for the purchased assets.
Moreover, the sales yielded approximately $15 million and provided the Debtors — with the consent of their existing secured lenders — with cash collateral to fund these chapter 11 cases and reduce the Debtors’ need for supplemental debtor-in-possession financing. During this time, the Debtors also sold their equity interests in Purrfect Ventures LLC, a non-Debtor joint venture with Katy Perry.
In addition to the Spyder and Frye sales, the Debtors have also entered into a stalking horse purchase agreement, subject to Court approval, with WH AQ Holdings LLC (as Purchaser) and Hilco Trading, LLC (as Guarantor) for the Debtors’ Aquatalia brand and business. The stalking horse bid, which will be implemented through these chapter 11 cases, provides a purchase price of $17.3 million… The Debtors will continue marketing their assets throughout the chapter 11 cases — starting on day 1. This will not only include the Aquatalia assets covered by the stalking horse bid, but also assets related to the Debtors’ other fashion brands and assets that fall outside the stalking horse bid."
The Caldwell Declaration continues, "To facilitate a competitive auction process, the Debtors have filed a motion requesting approval of uniform bidding and auction procedures for all of their brands and assets. Pursuant to the proposed bidding procedures, which remain subject to Court approval, interested parties will have the opportunity to bid for any of the Debtors’ brands, either individually or on a package basis, whether or not a particular brand is included in the stalking horse bid.
In addition to the three month marketing process that unfolded prior to the Petition Date, interested parties will have approximately fifty days to submit bids in accordance with the bidding procedures… Given the significant costs associated with continued operations and a protracted chapter 11 proceeding, the DIP and cash collateral orders set forth milestones by which the Debtors must accomplish various objectives in an expeditious manner. Such milestones include, among others, the following:
- Deadline to File Bid Procedures Motion: July 31, 2021 (2 days after Petition Date)
- Entry of Bid Procedures Order: September 2, 2021 (35 days after Petition Date)
- Deadline to Receive Acceptable Bid: September 27, 2021 (60 days after Petition Date)
- Entry of Sale Order: October 7, 2021 (70 days after Petition Date)
- Closing: October 7, 2021 (70 days after Petition Date)
The Debtors are aware of the accelerated timeline that they are requesting to travel through these chapter 11 cases. However, the Debtors respectfully submit that moving quickly is necessary given the severe liquidity constraints within which the Debtors are operating. By moving quickly, the Debtors believe they can maximize recoveries for stakeholders while keeping administrative expenses manageable."
The Stalking Horse Asset Purchase Agreement is attached to the Caldwell Declaration as Schedule 2.
The Debtors have secured commitments for $16.0mn of debtor-in-possession ("DIP") financing from ReStore Capital, LLC. The Debtors anticipate that the recent sales of Spyder and Frye’s inventory and related assets noted above will provide them with the cash collateral necessary to meet immediate liquidity needs and also reduce the need for what might otherwise be a larger DIP financing facility. The Debtors note: "The DIP facility, coupled with the consensual use of cash collateral, should provide GBG USA with sufficient funding to implement its sale strategy in an orderly manner and to maximize value for all stakeholders."
As of the Petition Date, the Debtors have approximately $238.4 million in outstanding secured funded indebtedness, consisting of, among other things: (i) approximately $126.5 million in aggregate principal amount outstanding under the Prepetition RCF and (ii) approximately $108.3 million in aggregate principal amount outstanding under four separate second lien bilateral bank facilities (collectively, the “Second Lien Facilities”). The Debtors are also party to a receivables factoring facility with CIT Bank.
The components of the Debtors’ outstanding indebtedness are summarized below:
About the Debtors
GBG USA is a company incorporated under the laws of Delaware and is an indirect wholly owned subsidiary of the Company. GBG USA is primarily engaged in operating the wholesale and direct-to-consumer footwear and apparel business in North America.
About Global Brands Group Holding Limited
Global Brands Group Holding Limited (SEHK Stock Code: 787) is a leading branded apparel and footwear company. The Group designs, develops, markets and sells products under a diverse array of owned and licensed brands.
The Group’s Europe wholesale business operates under legal entities entirely separate and independent from the wholesale business in North America. It primarily supplies apparel, footwear and accessories to retailers and consumers across Europe under licenses separately entered into by the Europe entities of the Group. The Group’s global brand management business operates on a different business model and is distinctly separate from the wholesale businesses in North America and Europe.
Global Brands’ innovative design capabilities, strong brand management focus, and strategic vision enable it to create new opportunities, product categories and market expansion for brands on a global scale.
Corporate Structure Chart
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