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November 11, 2020 – In anticipation of a November 17th Plan confirmation hearing, the Debtors filed a Second Amended Plan of Liquidation and a related blackline showing changes to the version of the Plan filed on October 1, 2020 [Docket Nos. 540 and 544, respectively]. The Debtors have also filed (i) a memorandum of law in support of Plan confirmation (the "Memorandum") and (ii) a proposed Plan confirmation order [Docket Nos. 541 and 543, respectively].
Potential Plan Objections
The Memorandum notes, “…the Debtors received five (5) formal and seven (7) informal objections to confirmation of the Plan….the Debtors have formally resolved all but three (3) of those objections, and are in negotiations to resolve the balance. The Debtors are cautiously optimistic that the remaining objections [two tax-related and one lease-related] will be resolved by agreement prior to the Confirmation Hearing. In particular, the Debtors have worked with the Office of the United States Trustee for the District of Delaware (the 'U.S. Trustee'), to address certain concerns and…all of the U.S. Trustee’s concerns have been consensually resolved through incorporation into the Plan of certain agreed-upon language. Furthermore, the Plan has the full support of the Committee (as defined below) and the Debtors’ secured lenders.”
The Amended Disclosure Statement [Docket No. 452] provides: “On August 14, 2020, the Debtors consummated a sale of substantially all of their assets, pursuant to an Asset Purchase Agreement and Sale Transaction approved by the Bankruptcy Court on August 12, 2020. The credit bid approved as part of the Sale Transaction extinguished the Debtors’ debtor-in-possession financing, as well as a portion of their Second Lien Term Loan Claims. Certain proceeds from the Sale Transaction were used at the closing to pay off the Debtors’ First Lien Lenders. The remaining Net Sale Proceeds of the Sale Transaction were used to fund certain accounts established and maintained by the Debtors, Epiq, and Young Conaway Stargatt & Taylor, as well as to fund the payment to the Second Lien Lenders, all in accordance with and to the extent required under the Sale Order. Such accounts included: (i) an account required by the Sale Order for Claims held by certain Texas taxing authorities, (ii) the Professional Fee Escrow Account and (iii) an account to hold estimated stub rent claims and estimated claims entitled to priority under 11 U.S.C. 503(b)(9). The Plan described in this Disclosure Statement provides for the distribution of Net Sale Proceeds remaining as of the Effective Date of the Plan.
On the Effective Date of the Plan, the Debtors shall fund from their Cash on hand, including any remaining Net Sale Proceeds (i) the initial distribution to Class 3 provided under the Plan and, to the extent not already funded, (ii) the Wind Down Reserve in accordance with the Wind Down Budget, attached as Exhibit C hereto, and the Plan Administration Agreement, a form of which will be Filed with the Plan Supplement. The Wind Down Reserve shall vest in the Debtors and their Estates pursuant to Article V.C of the Plan.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $2.0mn and the estimated recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $986k and the estimated recovery is 100%.
- Class 3 (“Second Lien Term Loan Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $29.0mn and the estimated recovery is 10% – 38%. Holders of Second Lien Term Loan Claims shall receive a pro rata share of the Initial Class 3 Distribution and the Final Class 3 Distribution. The Second Lien Term Loan Claims are calculated using a reduced principal balance to reflect the credit bid portion of the Sale Transaction and an additional reduction of approximately $5.0mn due to a pay down that occurred on August 27, 2020.
- Class 4 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is $101.3mn FN and the estimated recovery is 0% – 100%. The estimated recovery for Class 4 – General Unsecured Claims is not a Distribution from the Estates. Based on the current amount of projected Claims, if all Holders of General Unsecured Claims participate in the Release Consideration, and dependent on the maximum Release Consideration available, the recovery will be approximately 1% (subject to the claims allowance process). If the amount of Allowed General Unsecured Claims is higher than projected, recovery may be below 1%. If the amount of Allowed General Unsecured Claims is lower than projected, or if less than 100% of the projected amount of General Unsecured Claims participate in the Release Consideration, recovery may be higher than 1%. FNReflects pre‐petition amounts for merchandise vendors, non‐merchandise vendors and accrued rent Claims.
- Class 5 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
- Class 6 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
- Class 7 (“Existing Lucky Brand Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
On August 12th, the Court hearing the Lucky Brand Dungarees cases issued an order approving the $198.6mn sale of substantially all the Debtors’ assets to SPARC Group LLC ("SPARC" or the “Buyer”) [Docket No. 349]. An execution version of the July 3, 2020 asset purchase agreement (the “APA”) governing the terms of the sale is attached to the order as Exhibit A.
On August 7th, the Debtors notified the Court that, absent any further qualified bids beyond that of stalking horse SPARC, an auction scheduled for August 10th had been canceled and SPARC designated as the Successful Bidder [Docket No. 302].
SPARC's successful bid is valued at $198.6mn of which $140.1mn is cash, with the balance comprised of a $51.5mn credit bid and $7.0mn of assumed liabilities.
SPARC is an entity formed by Authentic Brands Group LLC ("ABG") and Simon Property Group.
About the Debtors
Founded in Los Angeles, California in 1990, Lucky Brand is an apparel lifestyle brand that designs, markets, sells, distributes, and licenses a collection of contemporary premium fashion apparel under the “Lucky Brand” name. The Company’s products, designed for women, men, and children, include denim jeans, pants, woven and knit tops, outerwear, and accessories.
The Renzi Declaration adds: “Lucky Brand is globally recognized for innovative, trendsetting denim jeans and apparel. Lucky Brand sells directly to consumers in the United States in Company-owned Lucky Brand stores, to a network of wholesale accounts that include department stores, selected specialty retailers and boutiques, and through the Company’s e-commerce site, www.luckybrand.com.As of May 2020, the Company operated 112 specialty retail stores and 98 outlet stores in North America. In addition, Lucky Brand selectively provides licenses to third parties to use the Company’s various trademarks in connection with the manufacture and sale of designated products in specified geographical areas for specified periods.”
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