Use of the money, which the Los Angeles e-tailer secured in November 2015 well before its filing for bankruptcy last week, saw opposition from lender Hercules Technology Growth Capital Inc. The Palo Alto firm, which lends to venture capital-backed companies, called out Nasty Gal in court Friday, accusing the firm of rejecting offers for additional liquidity that would have eliminated the need for a Chapter 11 filing. The company “instead chose to rush headlong into an ill-advised and unfocused Chapter 11 proceeding that will kill its brand, destroy its already damaged vendor relationships, burn valuable cash collateral without adequately replacing it and result in a liquidation at much more depressed values for all constituents than would have been available had [Nasty Gal] not chosen this expensive and futile course,” attorneys for Hercules said in court documents.
The Los Angeles e-tailer last week asked a judge in its first-day motions to expedite approval of the money for expenses such as payroll and also cover the roughly $400,000 it spends weekly on merchandise for its online store and two physical storefronts on Melrose Avenue and Third Street Promenade. The judge overseeing the company’s case on Tuesday approved interim use of the funds until a final decision is rendered.
The company struggled under the weight of its own successes, with president and chief restructuring officer Joe Scirocco saying the business had difficulty keeping pace with its own growth and more recently saw international sales slump. The 12-month period through Jan. 30 saw net revenue off about 9 percent to $77.1 million with an earnings before interest, taxes, depreciation and amortization loss widened to $15.4 million compared to $6.3 million in the year-ago period.
The company projects net revenue for the year ending Jan. 27 to be roughly flat with a year earlier at $77 million, with negative EBITDA of $1.4 million.
A final hearing on the loan matter — whether it can be used at all or if conditions to its use need to be modified — is scheduled for Dec. 6, allowing Hercules time to submit a final objection and Nasty Gal adequate time to prepare a response.