December 21, 2020 – The Debtors filed their First Amended Plan and related Disclosure Statement [Docket Nos. 709 and 710 respectively], showing changes to the initial versions filed on August 2, 2020 [Docket Nos. 24 and 25, respectively].

Previously on October 22, 2020, further to an August 28th bidding procedures order and an October 15th auction [Docket Nos. 269 and 450, respectively], the Court hearing the Le Tote cases issued an order approving the sale of substantially all the Debtors’ assets relating to the e-commerce platforms of Le Tote and Lord & Taylor to the Saadia Group LLC (“Saadia” or the “Buyer, $12.0mn cash purchase price) [Docket No. 473].

In addition to incorporating the terms of the sale, the amended Disclosure Statement also adds details in respect of settlement and plan negotiations and an HBC Settlement and attached the Settlement Term Sheet as Exhibit D.

Although the Debtors argue in the Amended Disclosure Statement in regards to the HBC Settlement that  "Through this settlement, the Plan provides the ability of the Debtors to satisfy administrative and priority claims in full and to make a significant distribution to unsecured creditors who likely otherwise would receive minimal and substantially delayed, if any, recovery," the amended document notes that "the official committee of unsecured creditors (the ‘Committee’) disagrees and believes that the HBC Settlement falls below the lowest point in the range of reasonableness." (See details on the Committee's related Standing Motion below).

Plan Overview

The Amended Disclosure statement [Docket No. 710] notes, “The proposed Plan achieves an orderly wind-down of the Debtors’ estates that maximizes the value of all estate assets, including the Debtors’ remaining inventory and certain potential litigation assets stemming from the 2019 acquisition (the ‘Acquisition’) of Lord & Taylor LLC from HBC US Holdings Inc. (‘HBC Holdings’), a subsidiary of Hudson’s Bay Company ULC (f/k/a Hudson’s Bay Company) (‘HBC’), and HBC US Propco Holdings LLC (‘HBC Propco’ and together with HBC Holdings and Hudson’s Bay, the ‘HBC Parties’), a subsidiary of HBC Holdings, and certain post-Acquisition transactions and certain other litigation claims. The proposed Plan is the culmination of more than six months of successful going-out-of-business sales, asset sales outside of the ordinary course business, investigations and related diligence into the Debtors’ assets by the Debtors’ independent directors and their advisors and approximately three months of hard-fought post-petition negotiations with HBC. Importantly, the proposed Plan incorporates an integrated settlement of claims and causes of action among the Debtors and HBC. Through this settlement, the Plan provides the ability of the Debtors to satisfy administrative and priority claims in full and to make a significant distribution to unsecured creditors who likely otherwise would receive minimal and substantially delayed, if any, recovery.

The Plan provides this value by settling estate claims and causes of action against HBC Holdings and HBC Propco on account of the Acquisition and the parties’ subsequent business dealings and other potential claims arising on or before the effective date of the Plan (the ‘HBC Settlement’), the terms of which are encompassed in the term sheet attached to this Disclosure Statement as Exhibit D. In exchange, the HBC Parties have, among other things, agreed to subordinate their secured claims under their seller note to administrative and priority claims and split recoveries on account of the Debtors’ remaining assets with unsecured creditors as set forth below. The HBC Parties have also agreed to provide key operational support, enabling the Debtors to extend their store-closing sales and deliver additional value. Finally, the HBC Parties have consented to the disallowance of certain rejection damages claims on account of a master lease held by an affiliate of the HBC Parties and to certain pricing reductions for the Debtors’ critical transition services agreement with certain of the HBC Parties. The HBC Settlement provides the Debtors a path forward to exit these chapter 11 cases while delivering significant value to unsecured creditors — an outcome that would be fraught with significant uncertainty and litigation risk, and likely not achievable at all, absent the HBC Settlement. As of the date of this Disclosure Statement, the official committee of unsecured creditors (the ‘Committee’) disagrees and believes that the HBC Settlement falls below the lowest point in the range of reasonableness.

The Plan provides the following recoveries to stakeholders:

• Administrative Claims and other Priority Claims will be paid in full in cash or otherwise unimpaired except to the extent that an individual holder agrees to less favorable treatment
• Allowed Other Secured Claims will receive, at the election of the Debtors: (a) payment in full in Cash; (b) the Collateral securing such Allowed Other Secured Claim; (c) reinstatement of such Allowed Other Secured Claim; or (d) such other treatment rendering such Allowed Other Secured Claim Unimpaired.
• Holders of the Seller Note Secured Claim and General Unsecured Claims will receive their pro rata share of Distributable Cash pursuant to the Waterfall Recovery. The Waterfall Recovery establishes the following recoveries following payment in full of Administrative Claims (other than the TSA Shortfall Claim) and Priority Claims:
  • Distributable Cash other than Urban Proceeds is allocated as follows: (i) first, to holders of the TSA Shortfall Claim; (ii) second, to holders of the Seller Note Secured Claim, until such holders receive $8 million on account of the Seller Note Secured Claim; (iii) third, to holders of Allowed General Unsecured Claims, until such holders have received $3 million on account of such claims; (iv) fourth, split 50/50 between holders of the Seller Note Secured Claim and the holders of Allowed General Unsecured Claims until the Seller Note Secured Claim is paid in full; and (v) fifth, to the holders of Allowed General Unsecured Claims.
  • The Urban Proceeds are allocated as follows: (i) first to holders of Allowed General Unsecured Claims until such holders have received $1 million on account of the Allowed General Unsecured Claims; (ii) second, split 50/50 between holders of the Seller Note Secured Claim and holders of Allowed General Unsecured Claims; and (iii) third, to holders of Allowed General Unsecured Claims.

The Plan maximizes creditor recoveries, provides the Debtors a path forward to quickly and efficiently complete these chapter 11 cases while extending their store closing sales to further increase recoveries and has the support of the HBC Parties and the Debtors’ independent directors. The Debtors encourage you to vote to accept the Plan.”

The following is an amended summary of classes, claims, voting rights and projected recoveries showing highlighted changes (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $3.6mn and the estimated recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Seller Note Secured Claim”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $35.2mn and the estimated recovery is 32%. Each Holder will receive its pro rata share of the Distributable Cash allocated to the Seller Note Secured Claim, if any, pursuant to the Waterfall Recovery.

^{FN: The projected recovery to holders of the Class 3 Seller Note Secured Claim does not include potential recoveries on account of proceeds of the litigation against Urban Outfitters, the value of which is not yet determined but the Debtors believe to be significant.}

• Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $82.8mn and the estimated recovery is 8%. Each Holder will receive its Pro Rata share of the Distributable Cash allocated to General Unsecured Claims, if any, pursuant to the Waterfall Recovery.

^{FN: The projected recovery to holders of Class 4 General Unsecured Claims does not include potential recoveries on account of proceeds of the litigation against Urban Outfitters, the value of which is not yet determined but the Debtors believe to be significant.}

• Class 5 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
• Class 6 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
• Class 7 (“Le Tote Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Each Le Tote Interest will be canceled, released and extinguished and will be of no further force or effect, and no Holder of Le Tote Interests shall be entitled to any recovery or distribution under the Plan on account of such Interests.
• Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.

The Disclosure Statement attaches the following exhibits:

• Exhibit A: Plan 
• Exhibit B: Corporate Structure Chart 
• Exhibit C: Disclosure Statement Order
• Exhibit D: Settlement Term Sheet

Updated Proposed Key Dates

• Voting Deadline: January 4, 2021
• Objections to Confirmation of the Plan: February 12, 2021
• Confirmation Hearing: February 22, 2021

Committee Standing Motion

On December 17, 2020, the Committee filed a motion seeking standing to pursue certain estate claims related to the Acquisition and attacking the HBC Settlement as inadequate (the “Standing Motion”). While many of the details of the Standing Motion were included in the proposed complaint filed under seal, the Amended Disclosure Statement said the Committee believes that the claims described therein are "significant, identifiable and material."

The Disclosure Statement further provides, "These claims can generally be divided into six categories: (1) constructive fraudulent transfer claims based on the Acquisition; (2) recharacterization and avoidance action with respect to the prepayment of the Inventory Note; (3) recharacterization and equitable subordination with respect to the validity and priority of the Seller Note; (4) claims with respect to breaches of the Transition Services Agreement; (5) an avoidance action with respect to setoffs under the Omnibus Agreement; and (6) lien avoidance actions relating to alleged perfection issues impacting the extent and validity of the HBC Prepetition Liens and HBC Prepetition Collateral (each as defined in the Cash Collateral Order). The Committee believes these claims are colorable and could result in a significant recovery for the Debtors’ Estates. The Standing Motion also constitutes the commencement of a Challenge' as defined in the Cash Collateral Order, pursuant to which the Committee is challenging the liens and claims of the HBC Secured Parties.

The Debtors believe that they have pursued the putative estate claims identified in the Committee’s Standing Motion through settlement under the HBC Settlement and that many of the claims identified in the Committee Standing Motion are not colorable. As discussed above, the Debtors further believe that the Plan and HBC Settlement deliver value to the Estates in general, and to unsecured creditors in particular, that far exceeds the value that might be obtained through protracted, expensive and uncertain litigation against the HBC Parties. The HBC Parties also dispute the allegations in the Committee’s Standing Motion and have identified numerous defenses to such claims. Accordingly, the Debtors and the HBC Parties intend to oppose the Committee’s Standing Motion."

About the Debtors

According to the Debtors: “Le Tote is a fashion subscription service that lets women rent clothing and accessories for a flat monthly fee. Members choose the items they want to wear and can keep them as long as they like. Members also have the option to purchase items at a discount. Le Tote’s data-driven model is powered by proprietary algorithms and in-house operational solutions. Le Tote partners with hundreds of brands including French Connection, Vince Camuto, BCBGeneration, Kate Spade, Rebecca Minkoff, Calvin Klein and more. Founded in 2012 by Brett Northart and Rakesh Tondon, the Y Combinator backed company has raised venture funding from Andreessen Horowitz, Google Ventures, Azure Capital Partners, Lerer Hippeau Ventures, Simon Venture Group, Sway Ventures, Epic Ventures, Arsenal Venture Partners, Funders Club and others.”

The Disclosure Statement adds: “The Debtors are the combination of Le Tote — a venture-backed fashion rental subscription service founded in 2012 in San Francisco — and Lord & Taylor LLC (‘Lord & Taylor’) — the iconic luxury retailer which traces its origins to 1826 in New York. Through Le Tote and Lord & Taylor, the Debtors operate both an online, subscription-based clothing rental service and a full-servicefashion retailerwith 38 brick-and-mortarlocations (the “Stores”) with a robust e-commerce platform. Through multiple business channels, the Debtors offer more than 150 brands of clothing and accessories for rental or sale. Le Tote acquired Lord & Taylor from HBC US Holdings Inc. (‘HBC Holdings’), a subsidiary of Hudson’s Bay Company ULC (f/k/a Hudson’s Bay Company) (‘HBC’), and HBC US Propco Holdings LLC (“HBC Propco”), a subsidiary of HBC Holding….”

Corporate Structure Chart (See Exhibit A) [Docket No. 15]

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