June 14, 2023 – The Rockport Company, LLC and four affiliated debtors (together “Rockport” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case No. 23-10774 (Judge TBD). The Newton, Massachusetts based Debtors, "a leading global designer, distributor, and retailer of comfort footwear around the world ["manufacturer" conspicuously absent]," are represented by M. Blake Cleary of Potter Anderson & Corroon LLP. Further Board authorized appointments include: (i) PKF Clear Thinking's Joseph Marchese to serve as Chief Restructuring Officer, (ii) Stifel Financial Corp. as investment banker and (iii) Epiq Corporate Restructuring, LLC as claims agent.

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $50.0mn and $100.0bn ($99.7mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Stella Intl Trading (Macao Commerce)($24.1mn trade claim), (ii) Maersk Warehousing and Distribution ($10.9mn trade claim) and (iii) East Mount Shoes LTD ($6.9mn trade claim). The top 30 list is dominated by manufacturers in China, India and Brazil and the logistics companies that move the Debtors' product.

In May 2018, The Rockport Company LLC and affiliates filed for bankrupty with an estimated $287.0mn of debt, with the centerpiece of those cases being the $150.0mn (base price) purchase of the Debtors' assets by current owner Charlesbank Capital Partners. Charlesbank commented at the time: “Rockport is a well-regarded brand, and we see many avenues for future growth…Now, with its more rational capital structure, the company is well-positioned both financially and competitively to take advantage of these market opportunities and achieve its true growth potential.”

Petition Date Highlights 

• Charlesbank-Owned Shoe Distributor/Retailer (Charlesbank Having Bought the Debtors' Assets for $150.0mn in 2018 Bankruptcy) Files for Bankruptcy with @$100.0mn of Funded Debt
• Cites Excess Inventory (Expected Post-COVID, "Back-to-Work Bump" Not Materializing), Supply Chain Challenges and Higher Interest Rates
• Lines Up $8.8mn of New Money DIP Financing from Prepetition Lenders to Fund Sale Process
• Looks to Re-Boot Failed Out-of-Court Sale Process and Aims for July 13th Auction

Auction and Sale

After falling short with an out-of-court sale effort, the Debtors are set to try again in-Court; building on what has been an extensive marketing effort by investment banker Stifel. The Debtors suggest they are close to naming a stalking horse (they have a non-binding letter of intent for certain assets…all-in-all not ideal) and have asked the Court to schedule a July 13th auction. Stifel provides as to marketing: "Between September 2022 and April 2023, Stifel ran an extensive marketing and sales process, contacting 13 strategic buyers, setting up and populating a detailed data room, and engaging in negotiations and discussions regarding the form of a potential strategic transaction. Ultimately, the Debtors received formal indications of interest ('IOIs') from two parties and, on December 11, 2022, signed an IOI with a potential purchaser (the “Initial Potential Purchaser”) and granted that party exclusivity through April 7, 2023….Despite having received significant and ongoing interest from multiple parties, and numerous in-person and virtual management meetings and significant diligence, the Debtors were unable to close on an out of court sale transaction with the Initial Potential Purchaser by the Sale Closing Deadline. As a result, the Debtors defaulted under the Forbearance Agreements and were immediately subject to the Prepetition Secured Lenders’ exercise of remedies.

Shortly after the Forbearance Agreements terminated, at the direction of their Prepetition Secured Lenders, the Debtors re-focused their efforts on preparing for these Chapter 11 Cases and executing a going-concern sale through section 363 of the Bankruptcy Code….After terminating exclusivity with the Initial Potential Purchaser, Stifel relaunched its outreach efforts on April 10, 2023, and contacted nineteen (19) potential strategic buyers, eleven (11) of whom were already active in the prior marketing process; and three (3) potential financial buyers. Of these twenty-two (22) parties, nine (9) have signed a NDA, five (5) have participated in management calls, and three (3) have submitted formal written proposals….On May 22, 2023, Rockport IP Holdings, LLC and The Rockport Company, LLC, entered into a non-binding Letter of Intent for the sale of certain of the Debtors’ assets. The Debtors and the counter-party continue to negotiate with goal of entering into a stalking horse asset purchase agreement…."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Marchese Declaration), Joseph Marchese, the Debtors’ CRO commented: “In late Spring 2022, Rockport significantly increased its inventory purchases for Fall/Winter 2022 in anticipation of a 'back-to-work' increase in sales. Unfortunately, that sales bump never materialized. 

Instead, in response to inflationary pressures and weakening economic conditions, the Debtors’ wholesale customers and distributors cancelled or materially cut back on orders, leaving Rockport holding significant excess inventory. This, combined with supply chain challenges and higher interest rates, has made it increasingly difficult for the Debtors to service their funded debt obligations and satisfy trade payables in a sustainable manner.

Between March 2022 and June 2023, the Debtors’ saw their outstanding trade payables increase….By late 2022, the Debtors defaulted under the Prepetition Senior Facilities, due to their failure to maintain a fixed charge coverage ratio of 1:1, and their failure to stay within a 10% variance of budgetary restrictions that were triggered by their failure to meet excess availability threshold of $5 million (the '2022 Defaults').

In December 2022, following the 2022 Defaults, the Debtors entered into forbearance agreements with the Prepetition ABL Agent and Prepetition Term Loan Agent (the 'Forbearance Agreements'). In accordance with the Forbearance Agreements the Debtors (i) retained Clear Thinking as financial advisor and (ii) agreed to certain sale milestones, including a milestone covenant that the Debtors’ close on a sale transaction by March 31, 2023 (the “Sale Closing Deadline”)

Despite having received significant and ongoing interest from multiple parties, and numerous in-person and virtual management meetings and significant diligence, the Debtors were unable to reach an agreement on an out of court sale transaction with the Initial Potential Purchaser by the Sale Closing Deadline. As a result, the Debtors defaulted under the Forbearance Agreements and were immediately subject to the Prepetition Senior Lenders’ exercise of remedies."

Going back further, ie to the the 2018 Rockport bankruptcy and its aftermath, Marchese adds: "In May 2018, Rockport’s predecessor owners commenced chapter 11 proceedings in the Bankruptcy Court for the District of Delaware. During the course of these proceedings, Rockport’s current ownership group [ie Charlestown] acquired assets which comprise Rockport’s business today in a sale conducted pursuant to section 363 of the U.S. Bankruptcy Code.

Following the 2018 Bankruptcy sale, Rockport immediately sought to reposition itself in the market and adapt its operations to thrive a rapidly evolving retail environment. These efforts focused on the following four strategic vectors: (1) capitalizing on the Debtors’ core market, (2) deepening casual product offerings, (3) attracting younger consumers, and (4) simplifying its business model to drive efficiencies and high-quality growth. In furtherance of these objectives, Rockport closed its retail stores in the U.S., wound down non-core international operations, shifted to a distributor model, and focused on building their online presence both through the company’s “E-tail” site and its e-commerce wholesale channels.

Despite the restructuring efforts of its current ownership group, Rockport continued to struggle with high overhead costs and weakened demand for its core product lines due to, among other factors, the COVID-19 pandemic. In 2020, Rockport saw its revenue decline to $162 million from $275 million in 2019.

Through a combination of a temporary reduction in the minimum borrowing availability requirements under the Debtors’ Prepetition Senior Loan Facilities…and consistent support from their ownership group funded through the Prepetition Rockport Subnotes …Rockport survived the COVID-19 pandemic and executed on multiple aspects of its business strategy.

Notably, Rockport generated over $203 million in revenue in 2022 of which approximately $34 million was attributable to e-commerce and $42 million was attributable to E-tail (representing year over year growth of 23% and 44%, respectively). Despite these successes, the Debtors were ultimately unable to align expenses with their reduced revenue levels and, as a result, were left with an inadequate liquidity cushion to survive further economic challenges."

DIP Financing

The Debtors have commitments for $8.8mn of new money debtor-in-possession ("DIP") financing from prepetition lenders (ultimately the only source of DIP financing) with that new money part of a $40.9mn DIP package which includes several roll-ups. The DIP financing consists of (a) a $32.0mn DIP ABL facility, which will roll up the Prepetition ABL Facility on a creeping rolling basis (the “DIP ABL Facility”) and then entirely subject to entry of the Final Financing Order, and (b) a $8.8mn DIP term loan facility, which will roll up $34.0mn of the Debtors’ prepetition first lien term loan claims (the “DIP Roll-Up Term Loan”) and provide $8.8mn of new money (the “New Money DIP Term Loan” and together with the DIP Roll-Up Term Loan, the “Term Loan DIP Facility” and together with the DIP ABL Facility, the “DIP Facilities”).

Prepetition Indebtedness

As of the Petition date, Debtors Rockport Parent and Rockport U.S., together with certain of their Debtor and non-Debtor subsidiaries, are obligors with respect to approximately $99.71mn in funded debt obligations summarized as follows:

FN4 The Prepetition Rockport Subnote Agent…asserts that the principal amount outstanding under the Prepetition Rockport Subnotes as of the Petition Date is approximately $35.6 million plus PIK interest. The Debtors do not take a position with respect to the alleged claim amount and reserve all rights in connection thereto.

About the Debtors

According to the Debtors: “The Debtors, together with their non-Debtor subsidiaries (the 'Rockport'), are a leading global designer, distributor, and retailer of comfort footwear around the world. The Rockport Group’s classic, non-seasonal, and timeless multi-branded portfolio includes Rockport®, Cobb Hill®, and Dunham® products, and well-known product lines such as Prowalker and Total Motion. In the United States, the Rockport Group’s products are sold direct-to-consumer via the Debtors’ websites www.rockport.com, www.cobbhill.com, and www.dunham.com, e-commerce platforms such as Amazon and Zappos, and retailers’ physical and online stores, including DSW, Macy’s, Nordstrom Rack, and Rack Room Shoes. Internationally, the Rockport Group has over 1,200 points of sale including retail stores and distributor partners covering over 65 countries.“

Corporate Structure Chart

A chart depicting the organizational structure of the Debtors’ direct parent, CB Marathon Holdings, LLC (“Marathon Holdings”) and its subsidiaries is set forth below, with the Debtor entities highlighted in red.

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