November 13, 2020 – The Debtors filed their Second Amended Chapter 11 Plan and a related Disclosure Statement [Docket Nos. 1577 and 1578, respectively], and separately filed redlines showing changes to the versions of those documents filed on November 4, 2020 [Docket No. 1579]. 

Plan Overview

The Disclosure Statement [Docket No. 1578] notes, “The following is a nonexclusive list of certain key terms in the Plan:

• Payment in full (100%) of secured, administrative and priority claims;
• Payment in full (100%) plus interest in cash to all holders of Allowed Class 5 General Unsecured Claims;
• Conversion of Interests in Tuesday Morning into New Common Stock subject to dilution by the Rights Offerings and Management Incentive Plan.

The sources of funding for the Plan include:

• Cash on hand from operations;
• Projected sale proceeds of approximately $60 million from the Sale Leaseback of the Debtors’ owned real property;
• $25 million in proceeds from the Debtors’ issuance of the Senior Subordinated Notes to the Senior Subordinated Noteholders; and
• Projected proceeds of a $40 million Rights Offerings, which is fully backstopped by the Backstop Parties.
  1. Eligible Offerees (any holder of Existing Common Stock as of the Rights Offering Record Date) will be eligible to participate in the Eligible Rights Offering Common Stock for an aggregate purchase price of up to $24,000,000, with the remaining $16,000,000 reserved for the Backstop Parties under the Section 4(a)(2) Rights Offering.

Upon emergence from bankruptcy, the Reorganized Debtors will have access to a $110 million senior secured New ABL Credit Facility offered by the Debtors’ DIP Revolving Facility Lenders. If the Plan is approved, the Reorganized Debtors will emerge from bankruptcy as reorganized, well-capitalized entities able to continue conducting business with their key merchandise partners, continue to employ thousands of employees, and continue as tenant to hundreds of landlords.”

The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement, see also the liquidation analysis below, see changes in bold):

• Class 1 (“Other Priority Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0 and expected recovery is 100%. 
• Class 2 (“Other Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $200k and expected recovery is 100%. Each holder of an Allowed Other Secured Claim shall receive: (i) Payment in full in Cash of its Allowed Class 2 Claim; (ii) The collateral securing its Allowed Class 2 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 2 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Reinstatement of its Allowed Class 2 Claim.
• Class 3 (“Secured Tax Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0 (Tax claims are generally being paid in the ordinary course of business) and expected recovery is 100%. Each holder shall receive: (i) Payment in full in Cash of its Allowed Class 3 Claim; (ii) the collateral securing its Allowed Class 3 Claim; provided, however, any collateral remaining after satisfaction of such Allowed Class 3 Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Such other treatment consistent with the requirements of Bankruptcy Code section 1129(a)(9).
• Class 4 (“Existing First Lien Credit Facility Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $100k and expected recovery is 100%. Each holder shall receive Payment in Full, in Cash, of its Allowed Class 4 Claim plus any and all fees, interest (both pre and post-Petition Date), and reimbursement of expenses, and any other amounts owed or arising under the Existing First Lien Credit Documents through the time of Payment in Full, in three equal instalments to be paid on the 30th, 60th, and 90th days after the Effective Date (each a “Payment Date”). If a Payment Date does not fall on a Business Day, such Payment Date shall be extended to the next Business Day. All liens and security interests granted to secure such Allowed Existing First Lien Credit Facility Claims shall be retained until such payments shall have been made. Further, in the event that the Existing First Lien Agent is the agent for the New ABL Credit Facility, it shall retain the lines and security interests securing the Existing First Lien Credit Facility Claims after such payments are made and have such liens and security interests secure the New ABL Credit Facility. The estimated total amount of Allowed Class 4 Claims is $100,000.
• Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $125.0mn and expected recovery is 100%. Each holder of an Allowed Class 5 Claim shall receive payment in full of its Allowed Class 5 Claim from the General Unsecured Cash Fund with interest from the Petition Date through the Effective Date at the federal judgement rate in effect as of the Petition Date. 
• Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. On the Effective Date, Class 6 Claims shall be, at the option of the Debtors, either Reinstated or cancelled and released without any distribution.
• Class 7 (“Tuesday Morning Interests”) is impaired and entitled to vote on the Plan. On the Effective Date, each outstanding share of the Existing Common Stock shall remain outstanding. On the Rights Offering Distribution Date, each share of the Existing Common Stock outstanding on the Rights Offering Record Date shall be exchanged for (1) one share of the New Common Stock and (2) a Share Purchase Right entitling the holder to purchase a pro rata portion of the Eligible Holders Rights  Offering  Common Stock. On the Effective Date, Tuesday Morning Corporation Interests consisting of options, warrants, or other rights, contractual or otherwise, to acquire shares of the Existing Common Stock shall be reinstatedand entitle the holder to acquire an equal number of shares of the common stock of Reorganized Tuesday Morning, subject to dilution as a result of the issuance of the Rights Offering Common Stock and the issuance of equity securities on and after the Effective Date pursuant to the Management Incentive Plan. 
• Class 8 (“Intercompany Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 

The following documents were attached to the Disclosure Statement [Docket No. 1578]:

• Exhibit 1: Chapter 11 Plan (Filed separately at Docket No. 1577)
• Exhibit 2: Liquidation Analysis
• Exhibit 3: Financial Projections
• Exhibit 4: Terms of the New ABL Credit Facility
• Exhibit 5: Backstop Commitment Letter

Proposed Key Dates:

• Voting Deadline: December 15, 2020
• Objections Deadline: December 15, 2020
• Confirmation Hearing: December 22, 2020

Liquidation Analysis (See Exhibit 2 of Disclosure Statement for notes [Docket No. 1578]) 

About the Debtors

Tuesday Morning Corporation (NASDAQ: TUES) is one of the original off-price retailers specializing in name-brand, high-quality products for the home, including upscale home textiles, home furnishings, housewares, gourmet food, toys and seasonal décor, at prices generally below those found in boutique, specialty and department stores, catalogs and on-line retailers.  Based in Dallas, Texas, the Company opened its first store in 1974 and currently operates 687 stores in 39 states.

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