December 11, 2020 – The Court hearing the RTW Retailwinds cases issued an order confirming the Debtors' Plan of Liquidation [Docket No. 690].

On July 13, 2020, RTW Retailwinds, Inc. and 11 affiliated Debtors (formerly NYSE: RTW and now OTC: RTWI; “RTW” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of New Jersey, lead case number 20-18445. At filing, the Debtors, a specialty women's omni-channel retailer, noted estimated assets of $405.4mn and estimated liabilities of $450.0mn.

Overview of the Plan

In a memorandum of law filed in support of the Plan, the Debtors state [Docket No. 675], "On July 13, 2020 (the 'Petition Date'), following months of exploring out-of-court strategic alternatives while battling the devastation wrought by COVID-19, the Debtors commenced these bankruptcy cases (the 'Chapter 11 Cases') to maximize value for the benefit of all stakeholders through an orderly wind-down of the Debtors’ brick-and-mortar business and sale of the Debtors’ growing eCommerce business. Following a successful sale process, which included the preservation of approximately 100 jobs associated with the Debtors’ eCommerce business, and just over four (4) months after commencing these Chapter 11 Cases, the Debtors now seek confirmation of a Plan that is projected to distribute approximately 35% to general unsecured creditors and provide for the orderly wind-down of the Debtors’ estates. Indeed, the Plan is the culmination of the Debtors’ substantial efforts over the past several months to bring these Chapter 11 Cases to a value maximizing conclusion.

The Plan, which is supported by the Debtors’ key stakeholders, including the Official Committee of Unsecured Creditors (the 'Committee'), provides for the liquidation and conversion of all of the Debtors’ remaining assets to cash and the distribution of the net proceeds realized therefrom, along with existing cash, to creditors holding allowed claims in accordance with the relative priorities established in the Bankruptcy Code. In fact, the holders of Claims in Class 5 (General Unsecured Claims), the only class entitled to vote, overwhelmingly voted to accept the Plan with 98.75% in number and 99.99% in amount."

The Disclosure Statement continues, “Generally, the Plan:

• vests all Unencumbered Cash in the Liquidation Trust for the purpose of distribution to holders of Allowed Claims;
• provides for the full and final resolution of funded debt obligations and contingent debt claims;
• designates a Liquidation Trustee to wind down the Debtors’ affairs, prosecute, continue or settle Retained Causes of Action, pay and reconcile Claims and administer the Plan and Liquidation Trust; and
• provides for 100 percent recoveries for holders of Administrative Claims, Professional Fee Claims, Secured Tax Claims, Other Secured Claims, Other Priority Claims and Prepetition Credit Parties Claims.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement, also see the Liquidation Analysis attached below):

• Class 1 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and expected 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 $0 and expected recovery is 100%.
• Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $387k and expected recovery is 100%.
• Class 4 (“Prepetition Credit Party Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0 and expected recovery is 100%.
• Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $235.8mn and expected recovery is 31% – 38%. Holders shall receive their pro rata share of the Beneficial Trust Interests, which shall entitle the holders thereof to receive their pro rata share of Liquidation Trust Assets.
• Class 6 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is 0%.
• Class 7 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is 0%.
• Class 8 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of Interests is N/A and expected recovery is 0%.

Plan Voting Result

On December 4, 2020, the Debtors' claims agent notified the Court of the Plan voting result [Docket No. 663], which was a follows:

• Class 5 (“General Unsecured Claims”): 317 claim holders, representing $169,906,600.84 (or 99.99%) in amount and 98.75% in number, accepted the Plan. 4 claim holders, representing $7,676.98 (or 0.01%) in amount and 1.25% in number, rejected the Plan.

Asset Sale 

On September 4, 2020, the Court hearing the Debtors’ cases issued an order approving the sale of Debtors’ e-commerce business assets to New York-based investor Saadia Group LLC (“Saadia,” $40.0mn cash bid as adjusted for, inter alia, inventory and the Sunrise Brands break-up fee, the “Purchaser”) [Docket No. 319]. The Saadia asset purchase agreement (“APA”) was attached to the sale order at Exhibit 1; with an amendment to the APA detailing changes to the Saadia deposit and assumed leases attached at Exhibit 3.

In a press release heralding the better than expected sale results, Sheamus Toal, the Debtors' CEO commented: “We are extremely pleased to have received a new, significantly higher priced purchase agreement from Saadia Group for our e-commerce business and all related intellectual property and certain other assets. Similar to our previous agreement, the new agreement will allow our substantial e-commerce business to continue to operate and serve our loyal customers.”

Store Closings

On August 8, 2020, the Court issued a final order (i) authorizing the Debtors to assume a May 18, 2020 store closing consultancy agreement with a joint venture comprised of Great American Group, LLC (“GA”) and Tiger Capital Group, LLC (collectively, the “Consultant”), (ii) approving store closing sale procedures and (iii) authorizing an employee bonus program [Docket No. 183].

The Debtors' store-closing motion [Docket No. 23] states, “Before the Petition Date, the Debtors’ management, with the assistance of their advisors, performed an extensive analysis of the Debtors’ financial performance to identify areas for improvement. The financial analysis included a comprehensive review of the performance of each of the Debtors’ stores. As a result of this analysis, the Debtors determined, in their business judgment, that it was in the best interests of their estates, creditors, and all parties-in-interest for them to liquidate their store assets. Specifically, the Debtors determined to close all 387 of their retail stores (collectively, the ‘Stores’) and liquidate their inventory. The Debtors and their advisors have made the decision to seek authority to close and wind down or conduct other similar themed sales (‘Store Closings’) at the Stores, with such sales to be free and clear of all liens, claims, and encumbrances (the ‘Sales’).”

Exhibit attached to the Disclosure Statement [Docket No. 389]:

• Exhibit A: Joint Plan of Liquidation of RTW Retailwinds, Inc. and Affiliated Debtors pursuant to Chapter 11 of the Bankruptcy Code
• Exhibit B: Liquidation Analysis

Events Leading to Chapter 11 Filing

In a press release announcing the filing, the Debtors stated: “Details on the Company’s Chapter 11 process and go-forward strategy are as follows:

• The Company expects to close a significant portion, if not all, of its brick-and-mortar stores and, in connection therewith, the Company has launched a store closing and liquidation process. The Company, however, will continue to operate its business in the ordinary course in the near term, including continuing to re-open its previously temporarily closed brick-and-mortar stores, when and where appropriate; and
• The Company is evaluating any and all strategic alternatives, including the potential sale of its eCommerce business and related intellectual property.

As previously announced, on July 2, 2020, the Company entered into Amendment No. 3 ('Amendment No. 3') to the Fourth Amended and Restated Loan and Security Agreement and Joinder with Wells Fargo Bank, National Association, as administrative agent and lender. Under Amendment No. 3, the Company anticipates the full repayment of the approximately $12.7 million remaining outstanding balance under the Loan Agreement by August 31, 2020."

Sheamus Toal, the Debtors’ Chief Executive Officer and Chief Financial Officer, added, “The combined effects of a challenging retail environment coupled with the impact of the Coronavirus (COVID-19) pandemic have caused significant financial distress on our business, and we expect it to continue to do so in the future. As a result, we believe that a restructuring of our liabilities and a potential sale of the business or portions of the business is the best path forward to unlock value.”

Significant Prepetition Shareholders

• IPC NYCG LLC: 48.5%
• Paradigm Capital Management: 7.04%

Liquidation Analysis (see Exhibit B of Disclosure Statement [Docket No. 389] for notes)

About the Debtors

According to the Debtors: “RTW Retailwinds, Inc. (together with its subsidiaries, the “Company”) is a specialty women’s omni-channel retailer with a powerful multi-brand lifestyle platform providing curated fashion solutions that are versatile, on-trend, and stylish at a great value. The specialty retailer, first incorporated in 1918, has grown to now operate approximately 385 retail and outlet locations in 35 states while also growing a substantial eCommerce business. The Company’s portfolio includes branded merchandise from New York & Company, Fashion to Figure, and Happy x Nature, and collaborations with Eva Mendes, Gabrielle Union and Kate Hudson.”

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