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July 5, 2020 – Further to a February 18th bidding procedures order [Docket No. 102], the Debtors notified the Court hearing their cases that they had (i) selected Pier 1 Imports Online, Inc. (the "Stalking Horse Bidder") in connection with the sale of intellectual property assets and (ii) scheduled an auction in respect of those IP assets for July 8th. [Docket No. 828]. The Stalking Horse Bidder has agreed to pay $20.08mn, and the Asset Purchase Agreement (“APA”) governing the terms of the sale is attached to the motion as Exhibit A. The Stalking Horse Bidder is an entity created by Retail Ecommerce Ventures (designated as guarantor in APA) which recently acquired the IP assets of Dress Barn and is owned by online influencer Tai Lopez and Zoosk co-founder Alex Mehr (both of whom are identified as contacts in the APA).
The Debtors' Disclosure Statement (see more below) was approved on June 26th and memorialized the Debtors' COVID-19 driven abandonment of their "all-weather" Plan (ie sale or debt-for-equity reorganization) in favor of a wind-down; not exactly the "toggle" the Debtors had in mind at the outset of these cases.
Key Terms of the Stalking Horse APA
- Assets: All rights in Intellectual Property owned by the Company or any of its Subsidiaries and primarily used in the Acquired Business (ie the “E-Commerce Platform”);
- Consideration: The aggregate consideration (collectively, the “Purchase Price”) to be paid by Purchaser for the purchase of the Acquired Assets shall be equal to: (i) the assumption of Assumed Liabilities, plus (ii) a cash payment of the amount equal to $20,075,000, and plus or minus, as applicable, (iii) the Tax Apportionment Amount (the “Cash Payment”).
- Bidder Protections:
- Break-Up fee: $400k (the “Break-Up Fee”)
- Expense Reimbursement: $100k
- Auction: July 8, 2020
- Sale Objection Deadline: July 24, 2020
- Sale Hearing: July 30, 2020
The amended Disclosure Statement [Docket No. 790] provides, “With the support of 63.8% of its prepetition Term Loan Lenders, Pier 1 commenced these chapter 11 cases with an agreed Plan and operational process designed to maximize the value of the enterprise for the benefit of all stakeholders and continue the operational redo that is already underway….The ‘all weather’ Plan originally contemplated by the Plan Support Agreement provided for either the effectuation of a sale or the equitization of term loan indebtedness on a stand-alone basis. The Debtors secured $256 million in debtor in possession financing (‘DIP Financing’) to facilitate this process.
As the Company commenced negotiations with potential bidders and continued the store closing process, coronavirus (‘COVID-19’) entered the world’s stage and quickly upended day-to-day life in the United States and abroad. State and local governments imposed ‘shelter-in-place’ orders and mandated closure of non-essential retail operations, creating unprecedented challenges for the retail industry. Despite these challenges, the Company continued its efforts to reach a value-maximizing transaction and, following the bid deadline on March 23, 2020, the Company had received fee-based liquidation bids and was in extensive conversations with potential going-concern bidders, including the Required Consenting Term Lenders. Shortly after the bid deadline, the Required Consenting Term Lenders initially elected to pursue an equitization and the Company filed a notice cancelling the auction [Docket No. 428].
The Required Consenting Term Lenders, DIP Lenders, and the Creditors’ Committee utilized the post-adjournment period to finalize a transaction and ultimately reached an agreement in-principle to conduct a full-scale, orderly wind-down of the Debtors’ operations in accordance with the Wind-Down Budget. Accordingly, on May 19, 2020, the Debtors filed an omnibus motion seeking an order authorizing the Debtors to wind down operations and conduct closings of any remaining stores [Docket No. 671] (the ‘Wind-Down Motion’). The Wind-Down Motion also contemplated approval of the Wind-Down Budget and wind-down plan term sheet (the ‘Term Sheet’) [Docket No. 688], which the Bankruptcy Court approved on June 2, 2020 [Docket No. 744].
Pursuant to the Term Sheet and as reflected in the Plan, Holders of Claims and Interests will receive the following treatment in full and final satisfaction, compromise, settlement, release, and discharge of, and in exchange for, such holders’ Claims and Interests:
- Holders of Other Secured Claims will receive: (a) payment in full in Cash; (b) delivery of the collateral securing any such Claim and payment of any interest required under section 506(b) of the Bankruptcy Code; (c) Reinstatement of such Claim; or (d) other treatment rendering such Claim Unimpaired.
- Holders of Other Priority Claims and Administrative Claim will receive the Distributable Proceeds available for Holders of Allowed Administrative Claims (other than Professional Fee Claims and DIP Claims) and Allowed Priority Claims pursuant to the Waterfall Recovery, which amount shall be used by the Plan Administrator to fund the Administrative / Priority Claims Reserve. All known Holders of Other Priority Claims and Administrative Claims have been sent an Administrative / Priority Claim Consent Form pursuant to which the Debtors are seeking the agreement of such party to the treatment afforded to such Holder under the Plan. The treatment afforded to Holders of Other Priority Claims and Administrative Claims under the Plan is only available if each such Holder agrees to such treatment. The failure to return the Administrative / Priority Claim Consent Form or to object to the Plan shall be deemed to be such Holder’s consent to accept less than full payment of its Claim as required by section 1129(a)(9) and as contemplated under sections 1124 and 1123(a)(4) of the Bankruptcy Code, and in full and final satisfaction, compromise, settlement, and release of and in exchange for each Allowed Other Priority Claim and Allowed Administrative Claim (other than Professional Fee Claims and DIP Claims), as applicable, each Holder of an Allowed Other Priority Claim or Administrative Claims (other than Professional Fee Claims and DIP Claims), as applicable, shall receive its Pro Rata share of the Administrative / Priority Claims Recovery on the Effective Date, or as soon as reasonably practicable thereafter. If such Holder does not object to the treatment under the Plan, such Holder shall be deemed a Released Party for all purposes under the Plan.
- Priority Tax Claims (a reserve for which amounts will be funded into a Priority Tax Claims Reserve) will be paid in full in Cash on the Effective Date; provided that any amounts in the Priority Tax Claims Reserve after payment of all Allowed Priority Tax Claims shall otherwise promptly be transferred to the General Account to be distributed in accordance with the Plan without any further action or order of the Bankruptcy Court.
- to the extent not already indefeasibly paid in full in cash or ‘rolled up’ or converted into DIP Obligations pursuant to the DIP Order before the Effective Date, each Holder of an Allowed ABL Claim shall (a) receive Distributable Proceeds of ABL Priority Collateral up to the full amount of its Allowed ABL Claim and (b) all issued and undrawn letters of credit shall be replaced or cash collateralized in the amounts specified under the ABL Credit Agreement.
- Each holder of a Term Loan Claim will receive its Pro Rata share of the Term Loan Recovery Pool.
- Holders of General Unsecured Claims will receive their (a) Pro Rata share of the Distributable Proceeds pursuant to the Modified Waterfall Recovery, only if Distributable Proceeds are available after all senior Claims (including, for the avoidance of doubt, the Term Loan Claims) are paid in full; and (b) a complete waiver and release of any and all claims, Causes of Action, and other rights against the Holders of Allowed Class 5 Claims based on claims pursuant to chapter 5 of the Bankruptcy Code or under similar or related state or federal statutes and common law including fraudulent transfer laws from the Debtors, the Wind-Down Debtors, and their Estates, in each case on behalf of themselves and their respective successors, assigns, and representatives, and any and all other entities who may purport to assert any Cause of Action, directly or derivatively, by, through, for, or because of the foregoing entities, subject to and in accordance with Article X of the Plan.
The Plan provides the best available alternative for the Debtors’ estates and creditor recoveries. If the Debtors’ businesses were liquidated in a chapter 7 process, store closing processes likely would halt, forcing locations to go dark and resulting in termination of employees until a trustee could turn the lights back on. Even then, employees with critical institutional knowledge will have left, leaving a large and complex liquidation to be managed by new hires unfamiliar with the Debtors’ businesses. The needless loss of value to creditors and the Debtors’ estates would be enormous. Creditors would receive lower recoveries in chapter 7 because the Debtors’ estates necessarily would bear additional costs associated with transitioning to chapter 7, retaining a chapter 7 trustee, counsel, and advisors, and administering a chapter 7 process.”
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