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September 10, 2023 – Soft Surroundings Holdings, LLC and three affiliated debtors (together “Soft Surroundings” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 23-90769 (Judge Christopher M. Lopez). The Debtors*, "a leading direct-to-consumer nationwide Company, selling women’s apparel, accessories, beauty products, and home goods," are represented by Elizabeth C. Freeman of Law Offices of Liz Freeman. Further Board authorized appointments include: (i) Katten Muchin Rosenman LLP as general bankruptcy counsel, (ii) SierraConstellation Partners, LLC providing Curt Kroll as CRO, (iii) SSG Capital Partners, LLC as investment bankers and (iv) Stretto, Inc. as claims agent.
*The Debtors have been controlled by affiliates of Los Angeles-based PE house Brentwood Associates since 2012.
The Debtors’ lead petition notes between one and 50 creditors; estimated assets between $0 and $50k; and estimated liabilities between $50.0mn and $100.0mn ($68.9mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as: (i) Jiaxing Mengdi Import & Export ($3.4mn trade claim), (ii) Hangzhou Sino-Italy Apparel Co Ltd. ($2.8mn trade claim) and (iii) Zhejiang Jiaxin Silk Corp Ltd ($2.5mn trade claim).
Recent Operating Results
The Debtors operate two e-commerce websites—SoftSurroundings.com and SoftSurroundingsOutlet.com—which, during the 12 months ended December 2022, generated $141.6 million in sales (i.e., 65.4% of the Company’s overall sales). Additionally, the Company currently operates 44 stores in 24 states across the United States. During the 12 months ended December 2022, the Company’s retail stores generated $74.8 million in sales (i.e., 34.6% of the Company’s overall sales).
Petition Date Highlights
- St Louis-Based, Female-Centric Direct-to-Consumer (DTC) Retailer, Controlled by Brentwood Associates, Files for Bankruptcy with $68.9mn of Funded Debt
- Cites "Competitive Landscape…Move Towards Online Channels, the COVID-19 Pandemic, and Increased Costs of Goods and Services Due to Inflation" as Precipitating Need for Bankruptcty
- After Failed Out-of-Court Sales Effort, RSA Has Debtors Sell DTC/E-Commerce Assets to Coldwater Creek; with 44 Bricks and Mortar Stores to be Liquidated by Gordon Brothers
- Gordon Brothers, Having Already Provided $14.7mn of Bridge Financing, to Contribute a Further $18.0mn ($17.0mn Interim) of New Money DIP Financing
- Gordon Brother to Credit Bid DIP Loans for Entire Business; with Go Forward DTC/E-Commerce Assets Onsold to Coldwater Creek and Balance Liquidated
In a press release announcing the filing, the Debtors provide: "Soft Surroundings…today announced that it has entered into a Restructuring Support Agreement ('RSA') pursuant to which Coldwater Creek under the ownership of Newtimes Group, will continue ongoing direct-to-consumer and e-commerce operations.
To implement the RSA, the Company has filed voluntary petitions for reorganization under Chapter 11 in the Bankruptcy Court for the Southern District of Texas (Houston Division). Soft Surroundings has secured $18 million in debtor-in-possession ('DIP') financing from Gordon Brothers, subject to court approval, to enable business continuity. The DIP will enable the Company to continue to operate the business and meet its financial obligations, including the timely payment of employee wages and benefits without interruption, vendor payment for goods and services received on or after the filing date and other commitments during the restructuring.
The Company will also begin taking steps to reorganize around its direct-to-consumer and e-commerce operations."
Goals of the Chapter 11 Filing
The Kroll Declaration (defined below) provides: "The centerpiece of the transaction is the transfer of the Company’s direct to consumer business to an affiliate of Coldwater Creek and a subsequent wind-down of the Company’s  brick and mortar locations through a plan of reorganization."
Plan Overview (NB: Plan and Disclosure Statement to be filed imminently)
Kroll continues: "Pursuant to the Plan, substantially all of the Debtors assets will be transferred to 1903P through a combination of a credit bid of the obligations under the DIP Facility [$18.0mn of new monet and $14.7mn of July 2023 bridge financing set to be rolled up into the DIP ]and a cash payment to the Company. 1903P will then designate the purchased assets into two primary baskets – a group of assets that will be designated for purchase by Coldwater Creek that will form the basis of the 'go-forward' Company (primarily the Company’s direct to consumer business) and a group of assets that will designated for orderly wind-down by an affiliate of 1903P, Gordon Brothers Retail Partners, LLC (primarily the Company’s brick and mortar retail stores). The go forward assets will be transferred upon confirmation of the Plan and the retail stores will be closed in an orderly fashion in the time period between the confirmation date and the plan effective date."
Prepetition Marketing Efforts
The Kroll Declaration provides: "Since its engagement, SSG has diligently assisted the Company in its continued marketing efforts. SSG engaged in a robust process, contacting over 300 potentially interested parties….SSG also discussed the preferred process for the acquisition with the potential purchasers, including whether they would be willing to purchase the Company outside of a bankruptcy, assume the Company’s debt or consummate the purchase in a chapter 11 process. The Company ultimately received several indications of interest; none of which were immediately actionable but all of which led to a singular result—no parties wanted to purchase any physical stores, but all potential buyers expressed interest in continuing the direct to consumer business (i.e., the e-commerce marketplace and catalogs). As such, any potential buyer would need a partner to assist with the wind-down of the Company’s brick and mortar retail business [and that would be Gordon Brothers]."
Restructuring Support Agreement (attached at Exhibit 1 to Docket No. 18)
Kroll continues: "Seizing upon this opportunity, the Company and SSG introduced their existing lender, 1903P [ie Gordon Brothers, set to play store closing/liquidation role], to Coldwater Creek, a leading American catalog and online retailer of women’s apparel, accessories, shoes and home décor in the hopes that a partnership could be forged to save the iconic Soft Surroundings brand. The strategy was successful and, after several weeks of arm’s length negotiations, the parties developed a value maximizing transaction to save the Soft Surroundings brand, which transaction forms the foundation of the restructuring support agreement entered into on September 10, 2023 by and among the Debtors, 1903 Partners, LLC and 1903P Loan Agent, LLC (together, '1903P' or the 'Plan Sponsor'), BA-MOLAGERS SPV II, LLC (the 'Second Lien Lender'), and Brentwood Associates ('Brentwood' or the 'Consenting Sponsor')."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Kroll Declaration) [Docket No. 18], Curt Kroll, the Debtors’ CRO commented: “Like many other retailers, The Company, has faced headwinds due to macroeconomic conditions and high fixed costs that impacted the Company’s margins over the last several years. Shifts in the competitive landscape, a move towards online channels, the COVID-19 pandemic, and increased costs of goods and services due to inflation, among other factors all impacted the Company’s financial position.”
As of the Petition Date, the Debtors have approximately $68.9mn in total funded debt, the holders of which all support the Restructuring and are parties to the Restructuring Support Agreement. The funded debt consists of the following:
The Debtors have lined up debtor-in-possession "DIP" financing to be provided by Gordon Brothers affiliates 1903P Loan Agent, LLC (the “DIP Agent”) and 1903 Partners, LLC (the “DIP Lender” and collectively with DIP Agent, “1903”) and which will consist of up to $18.0mn ($17.0mn interim) of new money revolving loans. The DIP financing also includes a roll-up of $14.7mn of bridge financing provided by 1903 in recent months. Further to the terms of the RSA, 1903 is also serving as Plan Sponsor.
Key Prepetition Shareholders
- BA-MOLAGERS SPV, LLC: 71.6% (ie Brentwood Associates)
- BAPE IV-AIV, L.P: 19.8% (ie Brentwood Associates)
About the Debtors
According to the Debtors: “Headquartered in St. Louis, Missouri, Soft Surroundings has transformed with the times just as women have transformed themselves. We aim to help women live their truth by providing a curated assortment of lifestyle apparel & select home goods…We source our products and designs from women artisans around the world whenever we can – so we can provide distinct offerings that you won’t find anywhere else. Soft Surroundings celebrates today’s versatile woman, who demands stand-out style without compromising comfort. We provide her with a modern feminine aesthetic, curating and designing uniquely inspired apparel and accessories so she can unapologetically embrace life, and express her whole self."
Brentwood Associates adds: "The company’s product offering consists of soft, unique and easy-to-wear clothing, well-priced luxury bedding, home furnishings and state-of-the-art beauty and fragrance products. Soft Surroundings serves her customer through an omni-channel marketing and operational platform built around catalog, e-commerce and retail stores."
Corporate Structure Chart
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