June 21, 2023 –The Debtors have filed an executed stalking horse asset purchase agreement (the “APA”) entered into with ABG-Regatta LLC, a Delaware limited liability company (the “Buyer” or “Stalking Horse Bidder,” an affiliate of Authentic Brands Group, with bid protections including a $1.59mn break-up fee and a $1.0mn expense reimbursement [Docket No. 63, with copy of the Stalking Horse APA attached at Exhibit 1].

The centerpiece of the acquisition is the purchase of substantially all of the Debtors' U.S. tangible and intangible property; with $40.4mn to be paid for intellectual property and a TBD sum to be paid for inventory (effectively "70% of Cost for all Existing Inventory that is Tier One Inventory, plus 50% of Cost for all other Existing Inventory").

The Buyer has also agree to buy the Debtors' "Koreasub" and "Iberiasub" for $5.0mn and $100k (each as adjusted), respectively.

Key Terms of APA:

• Seller:
  • Rockport IP Holdings, LLC
  • The Rockport Company, LLC
  • CB Marathon Midco, LLC
  • CB Footwear Services, LLC
  • Rockport UK Holdings Ltd
• Buyer: ABG-Regatta LLC, an affiliate of Authentic Brands Group
• Buyer Guarantor: ABG Intermediate Holdings 2 LLC
• Acquired Assets: “Acquired Assets” means all of the U.S. Sellers’ right, title and interest, free and clear of all Liens (other than Permitted Post-Closing Liens), in and to all of the properties, rights, interests and other tangible and intangible assets of the U.S. Sellers used in, held for use in, or relating to the Business…"
  
• Purchase Price: The IP Purchase Price is $40.4mn. More globally, the Purchase Price for the Acquired Assets (ie U.S. Assets) is defined as: "

(a) The consideration for the Acquired Assets, shall be:

(i) an aggregate cash amount payable in accordance with Section 2.6(a) and Section 2.6(b) equal to the sum of:

1. the IP Purchase Price [$40.4mn], plus
2. the amount equal to the portion of the Existing Inventory Purchase Price that relates to Landed Existing Inventory, less the portion of the Existing
3. Inventory Purchase Price that relates to Post-Taking Shipped Inventory that was Landed Existing Inventory (the “Landed Existing Inventory Purchase Price”), plus 
4. the amount equal to the portion of the Refresh Inventory Purchase Price that relates to Landed Refresh Inventory, less the portion of the Refresh Inventory Purchase Price that relates to Post-Taking Shipped Inventory that was Landed Refresh Inventory (the “Landed Refresh Inventory Purchase Price”), minus
5. the total amount of the Inventory Sale Prepayments, minus
6. the Return Allowance, (collectively, the “Closing Cash Purchase Price”), and

(ii) One dollar ($1) in cash (the “Footwear Services Consideration”) payable in accordance with Section 2.6(c),

(iii) the portion of the Refresh Inventory Purchase Price that relates to Open Refresh Inventory (the “Open Refresh Inventory Purchase Price”) payable in accordance with Section 2.6(g),

(iv) the portion of the Existing Inventory Purchase Price that relates to Open Existing Inventory (the “Open Existing Inventory Purchase Price”) payable in accordance with Section 2.6(g), and

(v) Buyer’s assumption of the Assumed Liabilities at the Closing.

(b) Subject to Buyer’s timely exercise of the IberiaSub Designation Right pursuant to and in accordance with Section 2.3(a)(i), the consideration for the IberiaSub Equity Interests shall be the IberiaSub Purchase Price.

(c) Subject to Buyer’s timely exercise of the KoreaSub Designation Right pursuant to and in accordance with Section 2.3(a)(ii), the consideration for the KoreaSub Equity Interests shall be the KoreaSub Purchase Price.

• Bid Protections: 
  • Expense reimbursement of up to $1.0mn
  • Break-up fee equal to $1.59mn
  • An Initial Overbid Amount of $100k

APA Definitions:

• “Existing Inventory Purchase Price” means an amount equal to the sum of (i) seventy percent (70%) of Cost for all Existing Inventory that is Tier One Inventory, plus (ii) fifty percent (50%) of Cost for all other Existing Inventory.
• “IberiaSub Purchase Price” means the amount equal to $100,000 (i) plus the amount of all cash and cash equivalents of IberiaSub as of the closing of the sale of the IberiaSub Equity Interests pursuant to Section 2.1(b), (ii) less Indebtedness of IberiaSub (to the extent not extinguished as of such closing pursuant to Section 2.3(a)(i)), (iii) less Transaction Expenses of IberiaSub (to the extent not satisfied as of such closing). The definitive equity purchase agreement relating to the sale of the IberiaSub Equity Interests shall provide for customary estimates and post-Closing adjustments of each of the foregoing components of the IberiaSub Purchase Price.
• “IP Purchase Price” means an amount equal to Forty Million Four Hundred Thousand Dollars ($40,400,000).
• “KoreaSub Purchase Price” means $5,000,000, (i) (A) plus all cash and cash equivalents of KoreaSub as of the closing of the sale of the KoreaSub Equity Interests pursuant to Section 2.1(b) (such date on which the closing occurs, the “KoreaSub Closing Date”), (B) less Indebtedness of KoreaSub (to the extent not extinguished as of the KoreaSub Closing Date pursuant to Section 2.3(a)(ii)), (C) less Transaction Expenses of KoreaSub (to the extent not satisfied as of the KoreaSub Closing Date), (ii) plus the amount (which may be a positive or negative number) calculated as 90% of the difference between the amount of KoreaSub Accounts Receivable as of the KoreaSub Closing Date less $4.5 million, and (iii) plus the amount (which may be a positive or negative number) calculated as the difference between the KoreaSub Closing Inventory Value less $6.0 million. The definitive equity purchase agreement relating to the sale of the KoreaSub Equity Interests shall provide for customary estimates and post-Closing adjustments of each of the foregoing components of the KoreaSub Purchase Price."

Case Status

On June 14, 2023, the Rockport Company, LLC and four affiliated debtors (together “Rockport” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $50.0mn and $100.0bn ($99.7mn of funded debt). At filing, the Newton, Massachusetts based Debtors, "a leading global designer, distributor, and retailer of comfort footwear around the world," cited excess inventory (an expected post-COVID, "back-to-work bump" failing to materialize), supply chain challenges and higher interest rates" as leaving them needing to seek bankruptcy shelter.

In May 2018, The Rockport Company LLC and affiliates filed for bankruptcy 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.”

On June 16th, the Debtors filed a bidding procedures motion seeking: (i) approval of bidding procedures in relation to the sale of substantially all of the Debtors’ assets (the “Sale”), (ii) authorization to select one or more stalking horse bidders and (iii) approval of a proposed auction/sale timetable culminating in an auction on July 13, 2023 and a sale hearing on July 20, 2023. The sale order would approve the Sale.

Sale Background

Proposed Key Dates

• Bidding Procedures Hearing: June 23, 2023
• Bid Deadline: July 10, 2023
• Sale Objection Deadline and Assignment Objection Deadline: July 11, 2023
• Auction: July 13, 2023
• Proposed Sale Hearing: July 20, 2023
• Deadline to Consummate Approved Sale: July 28, 2023

Bidding Procedures Motion

“Prior to the commencement of these Chapter 11 Cases, the Debtors spent significant time and effort to bring to market a formal process for an investment in, or a sale of, the Debtors’ business with the assistance of an investment banker. In August of 2022, the Debtors were in contact with a handful of parties who expressed interest in an acquisition of the Debtors. The Debtors in turn consulted with Stifel to advise the Debtors in conducting a potential sale process. On September 22, 2022, following several strategic transaction inquiries and a Stifel-initiated introduction to an additional party, the Debtors engaged Stifel as their investment banker to conduct a marketing process and explore opportunities for strategic transactions, including a sale of the Debtors’ business as a going concern.”

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….”

The motion continues, “Given the Debtors’ prepetition marketing efforts, the proposed timeline will facilitate a fair and open sale process that will maximize the value received for the Assets. Moreover, the facts and circumstances of these Chapter 11 Cases, including the fact that: there has been significant prepetition marketing of the Debtors assets, the Debtors have a limited budget under their negotiated DIP Financing, the Debtors’ ability to use cash collateral is conditioned upon adherence to strict sale milestones, and the risk of losing a substantial number of employees who are necessary to preserve the value of the Assets, justify the timeline proposed by the Debtors herein. The most likely competing bidders are among those who the Debtors or Stifel previously contacted during the prepetition marketing and sale process. Moreover, if new bidders emerge, the proposed timeline will provide them with sufficient time to perform due diligence.

In addition, the Debtors believe that an expedited sale process will minimize any further deterioration of the Assets and is in the best interests of all stakeholders. Thus, the Debtors have determined that pursuing the Sale in the manner and within the time periods prescribed in the Bidding Procedures is in the best interest of the Debtors’ estate and will provide interested parties with sufficient opportunity to participate.”

Petition date Perspective

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

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."

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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