BCBG Max Azria RTW Fall 2016

Bankrupt BCBG Max Azria Global Holdings is considering either a sale of the company or a “debt for equity conversion on terms to be negotiated” as its exit strategy from bankruptcy proceedings.

Holly Felder Etlin, a managing director at AlixPartners and chief restructuring officer at BCBG since Jan. 12, said in a court document filed Tuesday in Manhattan bankruptcy court that the company is in talks with junior secured lenders to finalize terms of its Chapter 11 plan. A draft has already been filed with the court.

According to the court docket, the company on Tuesday filed a voluntary Chapter 11 petition for bankruptcy court protection. BCBG has obtained a commitment of $45 million in debtor-in-possession financing from existing asset-based and term loan lenders to continue operations while in bankruptcy. The restructuring contemplates a sale of assets, including its intellectual property or a stand-alone restructuring. The company earlier this year closed 120 stores as part of its restructuring efforts.

Etlin said in a declaration filed with the court that BCBG grew to more than 550 stores across the U.S., Canada, Europe and Japan, but then had “fallen victim” in recent years to adverse macro trends. She said those trends include: a general shift away from brick-and-mortar to online channels; consumer demographic shifts away from branded apparel; expensive leases; under-penetration of the firm’s wholesale and licensing segments, and expensive investments in overseas operations and distributor agreements. Consolidated net sales declined more than 20 percent since fiscal year 2014 from $785 million to $615 million in the most recent fiscal year, she said.

Max Azria founded the company in 1989 in Los Angeles.

Etline said Guggenheim Partners Investment Management has had a relationship with BCBG since 2006, when it first arranged for financing for the company to expand operations. As growth slowed and eventually contracted, BCBG’s operational issues reflected a cost structure misaligned with market realities, and the company found itself over-leveraged and short on liquidity. BCBG completed an “out-of-court” restructuring in early 2015 that included the “equitization of more than $300 million of secured term loans and a $100 million equity investment,” followed by a secured “rescue” financing in August 2016. The series of transactions led to Azria giving up his majority equity position and, effective Aug. 12, 2016, he retired from his roles as the company’s chief executive officer.

The chief restructuring officer said the proposed debtor-in-possession financing, reorganization plan and related bidding procedures are designed to facilitate a process to maximize value and the likelihood of a going concern transaction within six months.

Her declaration cited a distribution of information packages to potential bidders by March 10, with submission of qualified bids by May 9. The company under its current timetable, which may be modified by the court, contemplates an auction on or before May 22.

BCBG Max Azria and Hervé Leger are the firms’ two primary brands. While the brands sell women’s apparel and accessories, the focus is on dresses, most of which retail at between $250 and $750. The company also sells apparel under the BCBGeneration brand, which is aimed at younger customers and at a lower price point.

Etlin noted that while the firm’s stand-alone stores and factory outlet sites have “struggled to meet performance goals,” the partner shops at department stores such as Bloomingdale’s, Dillard’s, Lord & Taylor and Macy’s “generally have remained profitable.” BCBG’s wholly owned foreign affiliates outside of North America have historically performed at a loss, and the expectation is that emergence from Chapter 11 would not include any overseas operations. Any international activities would be focused on “certain distribution licenses and wholesale sales,” Etlin said in the court document.