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February 14, 2023 – The Debtors requested Court authority to: (i) access $51.5mn of new money, debtor-in-possession (“DIP”) financing (including $25.0mn on interim basis, a portion of which will be used to repay a $3,170,000 bridge loan), with Cantor Fitzgerald Securities serving as administrative agent and Invictus Special Situations Master I, L.P. agreeing to serve as backstop lender, and (ii) to use cash collateral [Docket No. 36, with a draft of the DIP term loan agreement attached at Exhibit 1].
The balance of the DIP is to be made available in two further draws, (i) $16.5mn following entry of a final DIP order, $16.5mn and (ii) $10.0mn (the “Delay Draw Loans”) no earlier than April 1, 2023.
The DIP financing comes after what can only be called a mad scramble in the hours leading up to the Chapter 11 filings (the Debtors prefer: "After extensive negotiations, the Debtors finalized the terms of the final documentation of the DIP Facility in the hours immediately preceding the filing of the Chapter 11 Cases") with an offer on the table from prepetition ABL lenders scrapped in favor of the current Cantor Fitzgerald/Invictus proposal.
The financing on offer from the prepetition ABL lenders would have required the Debtors to convert to Chapter 7 within 60 days. It also required the Debtors to engage Gordon Brothers as a liquidation consultant in respect of all 487 of their stores, with the Debtors providing as to the ABL lenders' whip hand: "By force, such store closing sales commenced at various store locations prior to the Petition Date, beginning on January 19, 2023." As it stands, the Debtors will pursue a partial liquidation (264 underperforming "Closing Stores") without the added expense of an outside liquidation consultant. More globally, the current arrangements, which provide "for the repayment of the Pre-Petition ABL Obligations," will provide the Debtors with the breathing room necessary "to pursue either a bankruptcy sale process or to reorganize under chapter 11."
That breathing room does not, however, come cheap; with new money at 12.75% per annum and fees including (a) a commitment fee of 3%, (ii) a backstop fee of 7% and (iii) if borrowings are not repaid within 60 days of the DIP credit agreement being signed, an exit fee of 5%.
On February 14, 2023, Tuesday Morning Corporation and six affiliated Debtors (“Tuesday Morning” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn.
In a press release announcing the filing, Tuesday Morning notes that: "it is pursuing a financial and operational reorganization to enable the Company to reduce its outstanding liabilities, obtain significant and necessary capital, and ultimately transform into a nimbler retailer that serves heritage markets in a profitable manner….The Company has also obtained a commitment from Invictus to provide $51.5 million of debtor-in-possession ('DIP') financing to support ongoing operations during the proceedings. The DIP financing is subject to approval of the Bankruptcy Court.
During the restructuring process, Tuesday Morning plans to focus on optimizing its store footprint and focusing on its core and heritage markets. The Company intends to close stores in low-traffic regions while allocating the proper resources to remaining stores in high-traffic regions. The Company believes this targeted approach to winding down unprofitable and underperforming stores will position Tuesday Morning to emerge from bankruptcy with a profitable, cash-generating store fleet that serves its most engaged and loyal customers."
The DIP Motion
The motion [Docket No. 36] states, “The Debtors urgently need DIP financing in order to continue operations and avoid immediate and irreparable harm. The DIP Facility is the result of extensive and intense negotiations between the Debtors and the DIP Lenders. The DIP Facility provides the best opportunity for the Debtors to preserve and enhance value and avoid immediate and irreparable harm.
The agreement with the DIP Lenders reflects the most favorable terms under which the Debtors have been able to obtain DIP financing prior to commencing these Chapter 11 Cases that will allow the Debtors to explore value-maximizing options in Chapter 11 and ultimately preserve value for their creditors. The DIP Term Loans are necessary to fund critical expenses and to provide the Debtors with an orderly transition into the Chapter 11 Cases.
The DIP Facility contemplates a satisfaction and release of certain of the PrePetition ABL Obligations and a partial ‘roll-up’ of portions of the Prepetition Term Loan Secured Indebtedness and indebtedness under the Prepetition FILO C Convertible Notes by applying the DIP Facility proceeds to satisfy such obligations while financing the Debtors’ ongoing operations. The DIP Facility provides the Debtors with the necessary liquidity to continue operating their business and fund the expenses of these Chapter 11 Cases through a term loan credit facility of up to $51,500,000.
The roll-up feature of the DIP Facility is justified under the circumstances because, among other things: (i) the Roll-Up Loans are only applicable to Electing Lenders, who are the Prepetition Term Lenders or Prepetition FILO C Noteholders, as applicable, and are consenting to the use of their Cash Collateral; (ii) the Electing Lenders, in their capacity as Electing Lenders, are agreeing to provide postpetition liquidity through the DIP Facility; and (iii) the roll-up will result in a decrease in aggregate Prepetition Secured Indebtedness.”
The motion provides: "The first proposal for DIP financing came from the Prepetition Lenders (the 'ABL Proposal'). The Debtors and their advisors discussed a variety of different structures with the Prepetition Lenders for the ABL Proposal. The most recent ABL Proposal included a superpriority revolving credit facility of up to $40 million, an initial available amount of only $35 million, and a partial roll-up of the Prepetition Secured Indebtedness.
A key, non-negotiable requirement for the ABL Proposal was that the Debtors must file Chapter 11 and immediately commence a 60-day company-wide liquidation, then convert to Chapter 7. As such, the Debtors logically explored alternative financing options. The second proposal for DIP financing was for the DIP Facility proposed in this Motion. The DIP Facility, among other things, provides for the repayment of the Pre-Petition ABL Obligations, and provides the Debtors with an opportunity to pursue either a bankruptcy sale process or to reorganize under chapter 11.
While negotiating the debtor-in-possession financing proposals, the Debtors were faced with significant pressure from the Prepetition ABL Lenders to pursue a path of immediate, company-wide liquidation under the ABL DIP Facility. Specifically, the Prepetition ABL Lenders unilaterally increased the Company’s reserve requirements, required that the Company immediately commence store closing sales, and terminated and accelerated the Prepetition ABL Facility. By force, such store closing sales commenced at various store locations prior to the Petition Date, beginning on January 19, 2023.
Under immense timing pressure stemming from the ongoing store closing sales and the Debtors’ liquidity constraints, the Debtors engaged in simultaneous negotiations regarding the terms and final documentation of the DIP Facility to maximize the value of their estates. After extensive negotiations, the Debtors finalized the terms of the final documentation of the DIP Facility in the hours immediately preceding the filing of the Chapter 11 Cases."
Key terms of the DIP Term Loan Facility:
- Borrowers: Tuesday Morning, Inc., a Texas corporation
- Tuesday Morning Corporation
- TMI Holdings, Inc.
- Tuesday Morning, Inc.
- Friday Morning, LLC
- Days of the Week, Inc.
- Nights of the Week, Inc.
- Tuesday Morning Partners, Ltd
- DIP Agent and Lender: Cantor Fitzgerald Securities
- Backstop Lender: Invictus Special Situations Master I, L.P.
- DIP Facility: (a) on an interim basis, to obtain the Interim DIP Term Loans in an amount not to exceed $25,000,000 and (b) subject to entry of the Final DIP Order, to obtain additional DIP Term Loans on a final basis in an amount not to exceed (x) $26,500,000 plus (y) the Roll-up Loans (cumulative of the Interim DIP Term Loans (the “DIP Facility”), as provided in the DIP Term Loan Agreement, in accordance with the terms and conditions set forth herein and in the DIP Term Loan Agreement and the DIP Documents.
- New Money: $51.5mn ($25.0mn interim)
- Roll-up: N/A
- Permitted Use of Proceeds: All proceeds under the DIP Facility shall be used only for the following purposes, in each case, strictly in accordance with the Budget, subject to the Permitted Variances: including (a) to pay certain costs, fees, and expenses related to the Cases and (b) to fund the working capital needs and expenditures of the Debtors during the Cases;
Upon entry of the Interim Order and closing on the DIP Term Loan Agreement, (i) the Debtors shall (a) repay in full the $3,170,000 Bridge Loan, (b) refinance the Pre-Petition ABL Obligations other than the Pre-Petition LC Obligations and the Pre-Petition ABL Disputed Amounts, (c) fund the Cases, and (d) provide working capital.
Upon entry of the Final Order, without any further action by any parties to the DIP Term Loan Agreement, the Bankruptcy Court or any other Person, the PrePetition Term Loans and Pre-Petition FILO C Convertible Notes owing to each Electing Lender as of the Final Order shall be refinanced into and constitute Roll-Up Loans hereunder and the outstanding principal balance of and interest and fees accrued under the Roll-Up Loan and all other amounts in respect thereof owing to such Electing Lender shall constitute Obligations hereunder. The Borrower in consultation with the Lenders’ advisors shall provide an updated Schedule 2.01 to the Administrative Agent upon the entry of the Final Order with respect to the Roll-Up Loans.
- Interest Rates:
- DIP New Money Loans:12.75% per annuum
- Roll-Up Loans: 10.00% per annuum
- Default Rate: Additional 5%.
- Maturity: The consent of the DIP Agent, as directed by the requisite lenders under the DIP Term Loan Agreement, the Debtors’ authority to use Cash Collateral and the DIP Lenders’ commitment to provide credit under the DIP Term Loan Agreement and this Interim Order, subject to the funding and Budget limitations above, shall be effective upon entry of this Interim Order to and including the earlier of: (a) the Termination Declaration Date; provided that the Debtors shall be authorized to use Cash Collateral following delivery of a Termination Declaration solely to the extent set forth in this Interim Order; or (b) August 15, 2023, at 5:00 p.m. Central Time, at which time all of the Debtors’ authority to use Cash Collateral and to obtain credit under the DIP Term Loan Agreement and this Interim Order shall terminate, as shall the DIP Agent’s and the DIP Lenders’ obligation to continue funding the DIP Facility, unless extended by written agreement of the parties hereto, a copy of which with an updated Budget shall be promptly filed with this Court by the Debtors (the “Expiration Date”).
- Commitment Fee of 3% of any DIP New Money Loan
- Backstop Fee of 7% of the aggregate Commitment, due and payable in full on the Closing Date
- Exit Fee of 5% (unless the facility gets fully repaid/refinanced within 60 days of closing)
- DIP Agent Fees: $168,750.00
- Milestones: The Debtors shall achieve each of the following milestones (as the same may be extended from time to time with the written consent of the DIP Agent (the “Milestones”):
- Sale Milestones:
- Deadline to file file a bid procedures motion that includes a stalking horse bid; on or before February 24, 2023.
- Deadline to file DIP motion: No later than April 10, 2023
- Deadline to conduct auction: No later than April 12, 2023
- Deadline for sale hearing: No later than April 19, 2023
- Deadline to file final sale order: No later than April 12, 2023
- Plan Milestones:
- Deadline for the Credit Parties shall have filed a plan of reorganization and a related disclosure statement that are, in each case, in form and substance acceptable to the Lenders (respectively, “Acceptable Plan” and “Acceptable Disclosure Statement”), provided that a plan of reorganization that is a feasible plan which provides for the payment in full in cash of the DIP Facility on the effective date thereof shall be deemed to be an Acceptable Plan: on or before May 8, 2023.
- Deadline for the Bankruptcy Court shall have held a hearing with respect to the Acceptable Disclosure Statement; on or before June 8, 2023.
- Deadline after Acceptable Disclosure Statement is approved, the Bankruptcy Court shall have entered a Confirmation Order (the date such order is entered, the “Confirmation Date”); on or before July 12, 2023
- Deadline for effective date of the Accepted Plan shall have occurred; on or before 15 calendar days after the Confirmation Date.
- Sale Milestones:
Initial DIP Budget
About the Debtors
According to the Debtors: “Tuesday Morning Corporation 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 487 stores in 40 states."
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