December 23, 2020 – The Court overseeing the Tuesday Morning cases issued an order confirming the Debtors' Revised Second Amended Plan of Reorganization [Docket No. 1913].

On May 27, 2020, Tuesday Morning Corporation and six affiliated Debtors (Nasdaq "TUES;" “TMC” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 20-31476. At filing, the Debtors, "off-price retailers" operating 687 stores in 39 states, noted estimated assets of $92.0mn and estimated liabilities of $88.35mn.

In a press release announcing confirmation of the Plan, the Debtors said Tuesday Morning expects to emerge from Chapter 11 protection by the end of December.

Steve Becker, the Debtors' Chief Executive Officer, stated in the release, “We are pleased to have reached this critical milestone that sets the stage for our emergence as a stronger, more streamlined business. Throughout our reorganization, we have continued to work to deliver on our obligations to our stakeholders and partners…We look forward to Tuesday Morning’s future long-term success.”

Upon emergence, Tuesday Morning said it expects to have sufficient liquidity to support ongoing operations and strategic initiatives. Under the terms of the Plan, the capital structure of the reorganized company is expected to consist of a $110 million asset-backed lending credit facility which will provide working capital and $25 million in principal amount of a new senior subordinated note. Additionally, approximately $40 million in cash proceeds from an upcoming backstopped rights offering will be applied to pay creditors under the Plan.

On November 18, 2020, the Debtors filed solicitation versions of their Revised Second Amended Plan of Reorganization and a related Disclosure Statement [Docket Nos. 1633 and 1634, respectively].

Plan Overview

The Disclosure Statement [Docket No. 1634] notes, “Distributions under the Plan shall be made with: (1) Cash on hand, including Cash from operations; (2) the New ABL Credit Facility; (3) the New Real Estate Credit Facility; (4) the issuance of the General Unsecured Bonds; and (5) Reinstatement of the Tuesday Morning Corporation Interests, as applicable.”

The amended Disclosure Statement adds: “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 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. 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.

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 a 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):

• 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 Other Secured Claim shall receive: (i) Payment in full in Cash; (ii) The collateral securing its Class 2 Claim; provided, however, any collateral remaining after satisfaction of such Claim shall revest in the applicable Reorganized Debtor pursuant to the Plan; or (iii) Reinstatement of its 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; (ii) the collateral securing its Claim; provided, however, any collateral remaining after satisfaction of such Class 3 Claim shall revest in the applicable Reorganized Debtor; or (iii) Such other treatment consistent with the requirements of Bankruptcy Code.
• 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, 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 installments to be paid on the 30th, 60th and 90th days after the Effective Date (each a “Payment Date”). All liens and security interests granted to secure such 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 liens 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.
• 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 a Class 5 Claim shall receive its Pro Rata share of (i) the General Unsecured Cash Fund with interest from the Petition Date through the payment date at the federal judgment rate in effect as of the Petition Date. The initial amount of the General Unsecured Cash Fund shall be $86.3mnn and shall include, without limitation, the proceeds of the Sale Leaseback and the Senior Subordinated Notes (less the payment of applicable transaction costs and related closing costs) which shall be transferred immediately to the General Unsecured Cash Fund upon the earlier to occur of (a) the receipt of such proceeds or (b) upon the establishment of the escrow account or trust account. The proceeds of the Rights Offerings (which proceeds shall be received at completion of the Rights Offerings as described in Article IV.E.4 of the Plan) shall be transferred immediately upon receipt to the General Unsecured Cash Fund. The amount of the General Unsecured Cash Fund will be increased as necessary to ensure that the total amount of the General Unsecured Cash Fund is sufficient to satisfy all Allowed General Unsecured Claims in full with interest from the Petition Date through the payment date at the federal judgment rate in effect as of the Petition Date. For the avoidance of doubt, the reference in the Plan to “payment in full” or “paid in full” with respect to a Class 5 General Unsecured Claim shall mean the payment of 100% of the face amount of the Allowed General Unsecured Claim plus interest from the Petition Date through the payment date at the federal judgment 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. 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. 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 reinstated and 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.

Voting Results

On December 21, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 1870], which were as follows:

• Class 1 (“Other Priority Unsecured Claims”) 11 claim holders, representing $349,049.40 (97.55%) in amount and 84.62% in number, voted in favor of the Plan. 2 claim holders, representing $8,775.74 (2.45%) in amount and 15.38% in number, rejected the Plan.
• Class 2 (“Other Secured Claims”) 2 claim holders, representing $173,652.85 (99.999%) in amount and 66.67% in number, voted in favor of the Plan. 1 claim holder, representing $1.00 (0.001%) in amount and 33.33% in number, rejected the Plan.
• Class 3 (“Secured Tax Claims”) 1 claim holder, representing $1,350.01 (100%) in amount and 100% in number, voted in favor of the Plan.
• Class 4 (“Existing First Lien Credit Facility Claims”) 2 claim holders, representing $77,778.00 (100%) in amount and 100% in number, voted in favor of the Plan.
• Class 5 (“General Unsecured Claims Tuesday Morning Corporation”) 214 claim holders, representing $37,652,924.56 (99.93%) in amount and 1.83% in number, voted in favor of the Plan. 4 claim holders, representing $24,783.38 (0.07%) in amount and 1.83% in number, rejected the Plan.
• Class 7 (“Tuesday Morning Corporation Interests”) Claim holders representing 23,772,587.000 (98.36%) in amount and 1.64% in number, voted in favor of the Plan. Claim holders representing 396,405.000 (1.64%) in amount, rejected the Plan.

Plan Objections

The Debtors filed a Memorandum in Support of Confirmation of the Plan on December 21, 2020 [Docket No. 1885], which provides "Following several months of negotiations with their key constituents, the Debtors seek confirmation of a Plan supported by their Existing First Lien Lenders, the DIP Revolving Facility Parties, the Backstop Parties, the Creditors’ Committee and the Equity Committee; sponsored by the Backstop Parties; and overwhelmingly accepted by its Creditors based on their votes in favor of the Plan. The Plan will enable the Debtors to emerge from Chapter 11 and continue their operations as a going concern while preserving thousands of jobs for the Debtors’ employees….

The Debtors received ten (10) objections to confirmation of the Plan. The Debtors’ responses to the objections are set forth in section IV.F below. The Debtors also received informal comments from certain parties in interest, which the Debtors either have resolved or are working to resolve by agreed language contained in the proposed confirmation order (the 'Proposed Confirmation Order').,,[B]ased on the Ballot Certification filed on December 19, 2020 and the evidence to be presented at the confirmation hearing, the remaining objections should be overruled, all applicable requirements for confirmation have been satisfied and the Plan should therefore be confirmed."

The confirmation order states that all objections not resolved or withdrawn ahead of the confirmation hearing were overruled.

Key Documents:

The following documents are attached to the Disclosure Statement [Docket No. 1634]:

• Exhibit 1: Plan
• Exhibit 2: Liquidation Analysis
• Exhibit 3: Financial Projections
• Exhibit 4: Terms of the New ABL Credit Facility
• Exhibit 5: Backstop Agreement

Liquidation Analysis (See Exhibit 2 of Disclosure Statement for notes [Docket No. 1634])

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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