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July 29, 2021 – The Debtors requested Court authority to (i) access $16.0mn of new money, debtor-in-possession (“DIP”) financing and (ii) use cash collateral [Docket No. 14, with credit agreement attached at Exhibit 1].
The financing, to be provided Hilco Global affiliate ReStore Capital, LLC, comes in the form of a delayed draw term loan facility; with the "running on fumes" Debtors able to access up to $12.0mn of the $16.0mn facility upon entry of an interim DIP order (hearing scheduled for July 29th).
The availability of the expensive DIP financing (@20% interest and fees) and the consent of prepetition senior lenders as to the use of cash collateral, were both very much tied to the Debtor's parallel and multi-pronged asset sale effort.
At filing, the Debtors noted that they had already sold two of their brands (Spyder and Frye for @$15.0mn) and had a stalking horse for a third (Tengram Capital Partners teaming with Hilco, as guarantor, with a $17.2mn bid in respect of Aquatalia assets) which left the Debtors with some cash and prepetition lenders comfortable with the Debtors' limited use of cash collateral.
The proposed DIP financing was conditioned on the Debtors entering into definitive stalking horse arrangements in respect of their Aquatalia assets as of filing; and a termination of the Aquitalia stalking horse APA would constitute an event of default in respect of that financing (with Aquatalia sale proceeds earmarked for repayment of the DIP). We are likely to see some concerns about Hilco's ability to dictate the expensive DIP terms in light of its stalking horse role, but as the Ducera declaration in support of the proposed DIP financing (see "Marketing Efforts" below) makes clear, the Debtors were not exactly spoiled for choice and the asset sale efforts and DIP financing "ultimately converged with the proposed terms offered by the DIP Lender."
The Debtors' requesting motion states, “The Debtors enter bankruptcy running on fumes. Without the necessary financing and access to cash collateral provided for under this Motion, the Debtors would not have the requisite runway to achieve value maximizing asset sales in these cases. Until the sale process concludes and the Debtors monetize their assets, the DIP Facility will provide the necessary liquidity to fund the Debtors’ operating and working capital needs during the course of these chapter 11 cases. The same goes for the Debtors’ continued access to the use of Cash Collateral. Both are necessary to facilitate an orderly sale of the Debtors’ assets.
… the Debtors faced significant financial challenges leading up to the commencement of these chapter 11 cases. Against this backdrop, the Debtors — following an extensive months long process in consultation with their advisors and independent board directors — determined that the most prudent approach was to proceed with a sale of their assets to maximize recoveries for the company’s economic stakeholders. Through this process, it became apparent that the Debtors’ path to preserving the most value was by filing for bankruptcy protection. But filing involves its own attendant costs, and it would have been impossible to initiate the sales process without willing partners.
Fortunately, the DIP lenders and the Prepetition Secured Parties agreed to support the Debtors’efforts to maximize value for the Debtors’ estate. The Prepetition Secured Parties agreed to permit the Debtors to use Cash Collateral and to finance the chapter 11process if the Debtors could secure a stalking horse buyer and an appropriate floor for the anticipated auction.
The DIP Facility, coupled with the consensual use of Cash Collateral, should provide the Debtors with sufficient funding to implement their sale strategy in an orderly and value maximizing manner — not only for the Aquatalia Assets, but also the Debtors’ other fashion brands and assets that fall outside the stalking horse bid. Accordingly, the Debtors request entry of the Orders to give them the necessary liquidity and time to fund the Debtors’ operating and working capital needs pending the sale of the Aquatalia Assets and the Debtors’ remaining assets.”
Key Terms of the DIP Facility:
- Borrower: GBG USA Inc.
- Guarantors: Jimlar Corporation, Krasnow Enterprises Ltd., and Krasnow Enterprises Inc
- DIP Agent: ReStore Capital, LLC, a Hilco Global company
- DIP Lenders: The lenders party thereto from time to time
- DIP Facility: $16,000,000 senior secured superpriority multi-draw term loan facility.
- Maturity Date: The earliest of: (a) six (6) months after the Petition Date, (b) the consummation of a sale of all or substantially all of the Collateral (other than Collateral described in the DIP Credit Agreement), (c) the date that is thirty-five (35) days after the Petition Date if the Bankruptcy Court has not entered the Final DIP Order, and (d) the date on which the Obligations become due and payable pursuant to the DIP Credit Agreement, whether by acceleration or otherwise.
- Interest Rates: Libor + 8.0% per annum, payable monthly in arrears, Upon the occurrence and during the continuance of any Event of Default, interest equal to the applicable interest rate plus 2.0% per annum
- Expenses and Fees:
- Closing Fee: 4.0% earned, due and payable on the full DIP Facility commitment upon entry of the Interim DIP Order
- Exit Fee: 4.50% of the full DIP Facility commitment earned in full upon the earliest of (i) the acceleration of the DIP Loans, (ii) the occurrence of the Maturity Date and (iii) the repayment in full of the DIP Loans.
- Expenses of DIP Agent and DIP Lenders: The Debtors shall pay, in accordance with the DIP Credit Agreement and the Final DIP Order, the reasonable and documented out-of-pocket costs and expenses of the DIP Agent and DIP Lenders (including the reasonable and documented fees, out-of-pocket expenses and actual disbursements of outside counsel) as set forth in the DIP Credit Agreement and the DIP Orders
- Use of Proceeds: The proceeds of the DIP Facility shall be used by the Debtors to fund the cost of administering the chapter 11 cases and for general working capital, provided that such amounts shall only be funded by the DIP Lenders and allocated and spent by the Debtors in accordance with the Approved Budget.
- Milestones: The Loan Parties shall ensure the satisfaction of the following milestones, unless waived or extended in accordance with the DIP Credit Agreement:
- Deadline to file Bid Procedures Motion; July 31, 2021 (2 days after Petition Date)
- Deadline for 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)
- Deadline for Entry of Sale Order: October 7, 2021 (70 days after Petition Date)
- Closing: October 7, 2021 (70 days after Petition Date)
A declaration in support of the proposed DIP financing filed by investement bankers Ducera (attached at Exhibit C of the motion) provides: "
As the Debtors’ bankruptcy filing became more imminent, the Debtors began informal discussions with the First Lien Lenders. At the same time, the Debtors, along with their advisors, began evaluating whether they would be able to obtain DIP financing from third parties. In assessing this possibility, the Debtors were cognizant of the challenges presented by the fact that substantially all of the Debtors’ assets were encumbered by liens securing their obligations to the Prepetition Secured Parties.
During the course of negotiations, the First Lien Lenders informed the Debtors that (a) they would be willing to consent to the priming of a portion of their liens securing the Prepetition Indebtedness if a proposal by a third party could bridge to a value maximizing transaction, and (b) in such a scenario, the First Lien Lenders would consent to the consensual use of their Cash Collateral.
In connection with the parallel marketing process for the sale of the Aquatalia Assets, Ducera reached out to numerous potential investors to determine whether such parties were willing to provide debtor-in-possession financing in connection with their acquisition of the Aquatalia Assets. None of these potential lenders expressed a willingness to provide debtor-in-possession financing either (a) secured by liens junior to the liens of the Prepetition Secured Parties, or (b) secured by priming liens without the consent of the Prepetition Secured Parties given the attendant cost and delay of a likely priming dispute.
The Debtors’ marketing efforts and the Prepetition Secured Parties’ cooperation ultimately converged with the proposed terms offered by the DIP Lender. Following an extensive, months long, multi-track process, the Debtors determined that ReStore Capital, LLC offered the most cost-effective and beneficial debtor-in-possession financing terms.
In light of the terms generally required in the market for loans of the size and nature of the DIP Facility and considering the Debtors’ circumstances, the amount of secured debt already encumbering the Debtors’ assets as well as the expense, time and risks associated with finding and obtaining court approval of alternative financing, the Debtors and their advisors, including myself, determined that ReStore Capital’s final proposed terms for the DIP Facility were the best terms available to the Debtors."
As of the Petition date, the Debtors have approximately $238.4mn in outstanding secured funded indebtedness, consisting of, among other things: (i) approximately $126.5mn in aggregate principal amount outstanding under the Prepetition RCF and (ii) approximately $108.3mn 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.
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