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October 30, 2020 – The Debtors notified the Court that their Second Joint Amended Chapter 11 Plan had become effective as of October 30, 2020 [Docket No. 897]. The Court had previously confirmed the Plan on August 14, 2020 [Docket No. 705].
On May 10, 2020, Stage Stores, Inc. and one affiliated Debtor (NYSE: SSI; “Stage” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-32564. At filing, the Debtors, the operators of a network of 700 specialty department stores and off-price retail stores across the United States, noted estimated assets of $1.7bn and estimated liabilities of $1.0bn (these figures are identical to those filed in the Debtors' 10-Q for the quarter ended November 2, 2019).
The Debtors’ were represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Berkeley Research Group, LLC as financial advisors, (iii) PJ SOLOMON as investment bankers, (iv) A&G Realty as real estate advisor, (v) Gordon Brothers Retail Partners as store closing consultant and (vi) Kurtzman Carson Consultants LLC as claims agent.
An administrative claims (including professional fee claims) bar date of November 30, 2020 has been set.
The Disclosure Statement provides: “The Plan contemplates that a Plan Administrator will be appointed on the Effective Date to finalize the wind down of the Debtors’ estates, monetize any remaining assets, and make distributions to creditors in accordance with the Plan. The Plan Administrator will be identified closer to the Effective Date as part of the Plan Supplement. Upon completion of the Wind Down, the Plan Administrator will take steps to dissolve any remaining Debtor entities.
Under the terms of the Plan, Holders of Claims and Interests will receive the following treatment in full and final satisfaction, compromise, settlement, release, and in exchange for, such Holders’ Claims and Interests:
- Holders of Allowed Other Secured Claims will receive: (a) payment in full in Cash of such Holder’s Allowed Other Secured Claim, (b) the collateral securing such Holder’s Allowed Other Secured Claim, and (c) such other treatment rendering such Holder’s Allowed Other Secured Claim Unimpaired.
- Each Holder of an Allowed Other Priority Claim shall receive: (a) payment in full in Cash of such Holder’s Allowed Other Priority Claim or (b) such other treatment rendering such Holder’s Allowed Other Priority Claim Unimpaired.
- Except as set forth herein, on the Effective Date, or as soon as reasonably practicable thereafter, in full and final satisfaction, compromise, settlement, and release of and in exchange for each Allowed Prepetition Secured Claim, to the extent not already indefeasibly paid in full in cash, each Holder thereof shall receive: (a) its Pro Rata share of the Prepetition Secured Claims Recovery until paid in full, (b) to the extent the Prepetition Secured Claims Recovery is insufficient to pay all Prepetition Secured Claims in full, the residual unliquidated Prepetition Collateral and any available Post-petition Collateral, or (c) such other treatment as may be agreed upon by the Prepetition Agents and the Debtors.
- On the Effective Date, or as soon as reasonably practicable, except to the extent that a Holder of an Allowed General Unsecured Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement, and release of and in exchange for each Allowed General Unsecured Claim, each Holder of an Allowed General Unsecured Claim shall receive its Pro Rata share of the General Unsecured Claims Recovery until paid in full.
- Each Allowed Intercompany Claim, unless otherwise provided for under the Plan, will be canceled and released.
- Each Intercompany Interest shall be settled, canceled, released, and extinguished as of the Effective Date, and will be of no further force or effect, and Holders of Intercompany Interests will not receive any distribution on account of such Intercompany Interests.
- Each Allowed Existing Interest in the Debtors shall be canceled, released, and extinguished, and will be of no further force or effect and no Holder of Existing Interests in the Debtors shall be entitled to any recovery or distribution under the Plan on account of such Existing Interests.
- Allowed Section 510(b) Claims, if any, shall be canceled, released, and extinguished as of the Effective Date, and will be of no further force or effect, and Holders of Allowed Section 510(b) Claims will not receive any distribution on account of such Allowed Section 510(b) Claims.
In addition, Holders of Administrative Claims, Priority Tax Claims, Other Priority Claims, Prepetition Secured Claims, and General Unsecured Claims that vote to accept or do not affirmatively opt out of the releases provided by the Plan by checking the box on the applicable form indicating that they opt not to provide the releases provided by the Plan or do not object to the Plan shall be deemed ‘Released Parties’ and benefit from the Debtor release. The compromises and settlements to be implemented pursuant to the Plan preserve value by enabling the Debtors to swiftly emerge from chapter 11.
The Plan provides the best available alternative for the Debtors’ estates and creditor recoveries. If the Debtors’ business were liquidated in a chapter 7 process, store closing processes likely would be stopped in their tracks, forcing locations to go dark and terminate employees until a trustee could turn the lights back on. Even then, important employees with institutional knowledge will be gone for good, leaving an extremely large and complex liquidation to be managed by new hires unfamiliar with the Debtors’ business. 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.”
The following is a summary of classes, claims, voting rights and expected recoveries (Defined terms are as in the Plan and/or Disclosure Statement):
- Class 1 (“Other Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is less than $1.0mn and the estimated recovery is 100%.
- Class 2 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is less than $1.0mn and the estimated recovery is 100%.
- Class 3 (“Prepetition Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $232.1mn and estimated recovery is TBD. Each holder shall receive:
- its Pro Rata share of the Prepetition Secured Claims Recovery, until paid in full;
- to the extent the Distributable Cash is insufficient to pay all Prepetition Secured Claims in full, the residual unliquidated Prepetition Collateral and any available Post-petition Collateral; or
- such other treatment as may be agreed upon by the Prepetition Agents and the Debtors
If such Holder votes to accept the Plan, such Holder shall be deemed a Released Party for all purposes hereunder.
FN: Current projections anticipate the payment of such Claims in full. However, due to the uncertainty associated with store closings and the local, state, and national responses to COVID-19, the Debtors are soliciting such Holders in the event they do not receive payment in full.
- Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $342.0mn and the estimated recovery is less than 6%. Holders shall receive: (i) receive its Pro Rata share of the General Unsecured Claims Recovery until paid in full.
- 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 less than 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 less than N/A
- Class 7 (“Existing 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 less than N/A
- Class 8 (“Section 510(b) 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 0%.
On August 12, 2020, the Claims agent notified the Court of the Plan voting results [Docket No. 679].
- Class 3 (“Prepetition Secured Claims”) 1 claim holder, representing $232,101,725.02 (100%) in amount and 100% in number, accepted the Plan.
- Class 4 (“General Unsecured Claims”) 7098 claim holders, representing $63,867,593.05 (94.86%) in amount and 99.26% in number, accepted the Plan. 53 claim holders, representing $3,458,061.93 (5.14%) in amount and 0.74% in number, rejected the Plan.
- Class 4 (“General Unsecured Claims”) 349 claim holders, representing $29,034,948.28 (89.36%) in amount and 86.82% in number, accepted the Plan. 53 claim holders, representing $3,458,061.93 (10.64%) in amount and 13.18% in number, rejected the Plan. FN: For additional clarity regarding the Class 4 tabulation, this second Class 4 tabulation summary excludes the 6,749 individual votes for the aggregated amount of $34,832,644.77 against each debtor with respect to the general unsecured claims of individuals from Crosby et al. vs. Stage Stores Inc. (18-CV-503 M.D. Tenn.).
The tabulation summary also includes voting results for Specialty Retailers, Inc accepted the Plan for Class 3 – (“Prepetition Secured Claims”) and Class 4 – (“General Unsecured Claims”)
On July 31, 2020, the Debtors filed a Plan Supplement to their Joint Amended Chapter 11 Plan [Docket No.638].
The Plan Supplement attached the following documents:
- Exhibit A: Schedule of Assumed Executory Contracts and Unexpired Leases
- Exhibit B: Schedule of Retained Causes of Action
- Exhibit C: Identity and Terms of Compensation of the Plan Administrator
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Crowley Declaration”), Elaine D. Crowley, the Debtors' Chief Restructuring Officer detailed the events leading to the Debtors' Chapter 11 filing. Perhaps one of the most interesting aspects of what is now a familiar story (a retailer weakened by "the general downturn in the retail industry" and then finished off by COVID-19) is the near open-warfare between the Debtors and their landlords, a relationship always fraught for distressed companies but now with animosity increasingly front-loaded in the process by landlords that know they will be the first target the moment the Debtors hit Chapter 11. In this declaration, the Debtors note that aggressive landlord tactics (lock-outs, threatened evictions and inventory seizures) accelerated the Debtors "existential threats" and the Chapter 11 filings. Expect that aggression to continue in Chapter 11 as landlord look for adequate protection assurance and decry the fact that they are underwriting the bankruptcy process for senior creditors by providing free rent to the Debtors as they liquidate.
The Crowley Declaration states: "A confluence of factors contributed to the Debtors’ need to commence these chapter 11 cases. These include macroeconomic factors—including most significantly, , which has led to a decrease in sales, competitive sales promotions resulting in reduced profit margins, and the marked shift away from brick-and-mortar retail to online channels. Over time, these factors have tightened the Debtors’ liquidity and complicated their vendor relationships. As described above and in further detail below, these factors culminated in liquidity challenges beginning in winter 2019 and continued into 2020.
As a result of COVID-19, the Debtors closed their stores in March and furloughed substantially all of their employees. They also did not pay most of their rent due for March, April, and May. The Debtors received some default notices in March and early April, but the rate of such notices picked up materially in late April and early May. In addition, landlords began to lock the Debtors out of certain stores and threatened to evict the Debtors and dispose of the in-store inventory. Because the Debtors operate retail stores, these threats represented an existential threat to their operations, as well as potential safety threats to the communities which they have both depended upon and supported. Responding to and managing these default notices and related litigation outside of chapter 11 would have been a monumentally difficult task.
As of the Petition date, the Debtors have outstanding debt obligations in respect of their October 2014 credit agreement comprised of (a) approximately $178.6mn asset backed loan (the “ABL”) and (b) approximately $47.4mn under their term loan, each as summarized in the chart below:
Wells Fargo Bank, National, N.A. JPMorgan Chase Bank, N.A. Regions Bank Bank of America, N.A Truist Bank
December 16, 2021
LIBOR + 1.40% with one step-down to LIBOR + 1.25% if average daily excess availability is equal to or greater than 40% of the revolving loan cap (0.00% LIBOR floor)
Wells Fargo Bank, National, N.A. Pathlight Capital Fund I LP Pathlight Capital Offshore Fund I LLC Pathlight Capital LLC
December 16, 2021
LIBOR + 6.125% (1.00% LIBOR floor)
Additionally, the Debtors have outstanding unsecured trade debts (e.g., amounts owed to trade vendors, suppliers, landlords) that total approximately $173.0mn as of the Petition Date.
About the Debtors
According to the Debtors: "We are a leading retailer of trend-right, moderately priced, name-brand apparel, accessories, cosmetics, footwear and home goods. The company operates stores in 42 states through BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE specialty department stores, as well as GORDMANS off-price stores. Our stores are predominantly located in small towns and rural communities."
The Declaration adds: "Stage Stores—through its wholly owned subsidiary, Specialty Retailers—operates a network of specialty department stores and off-price retail stores across the United States that offer nationally recognized, moderately priced, brand-name and private-label apparel, accessories, fragrances, cosmetics, footwear, and home goods for the entire family. Stage Stores’ merchandise is sourced from primarily domestic vendors and is distributed through Stage Stores’ distribution centers located in Jacksonville, Texas; Jeffersonville, Ohio; and Omaha, Nebraska; as well as five smaller, overflow locations.
As of the Petition Date, Stage Stores operates in 42 states through 437 department stores under the Bealls, Goody’s, Palais Royal, Peebles, and Stage nameplates and 289 off-price stores under the Gordmans brand. Stage Stores also historically operated e-commerce business for its department stores, which was closed prior to Petition Date. Stage Stores’ department stores are predominately located in small towns and rural communities in south and south central states and its off-price stores are located in mid-sized, non-rural Midwestern states."
Corporate Structure Chart
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