By Sindhu Sundar
with contributions from Evan Clark, David Moin
 on September 4, 2019
Signage for Barneys New York department store is displayed on an outdoor banner, in New York. The luxury retailer could be joining a growing list of retailers that have filed for bankruptcyBarneys -Options, New York, USA - 16 Jul 2019

Barneys New York’s search for a savior has it back in bankruptcy court today.

But the path forward is a complicated one.

As the retailer’s lawyers go before U.S. bankruptcy judge Cecelia Morris to try to finalize its $217 million debtor-in-possession financing package from Brigade Capital Management, would-be be suitors are keeping close tabs on the process.

The financing is intended to help Barneys keep the lights on and new goods coming in as the company looks for a buyer. But there is still plenty of uncertainty and the retailer had to amend its plans over Labor Day weekend to assuage the concerns of unsecured creditors and prepare for the final hearing on the financing.

In the wings are companies that could potentially swoop in and try to buy Barneys, or at least part of it. Intellectual property expert Authentic Brands Group has been courting Barneys since before the bankruptcy filing and is said to still be keen on the firm.

Sources told WWD Tuesday that Ares Management, a principle owner of the Neiman Marcus Group, took a preliminary interest in Barneys after it went bankrupt but is currently not pursuing any deal. “They’re not spending any time on Barneys,” said one source, though the person added it’s possible that Ares takes another look at Barneys in a few months as the situation evolves and the lender-imposed deadline for selling the retailer around the end of October approaches.

Neiman’s declined to comment and a representative for Ares did not immediately respond to a query Tuesday afternoon.

It remains possible that Barneys’ Chapter 11 bankruptcy could switch over to a Chapter 7 liquidation, with bidders coming in at the last minute to scoop up the brand and other assets piecemeal.

Already the bankruptcy process has dramatically trimmed Barneys, which has sales of about $800 million — it started closing stores shortly after filing for bankruptcy on Aug. 6. A total of 15 of Barneys’ 22 retail stores and outlets have been designated to close, with Madison Avenue, Chelsea, Beverly Hills and Boston stores among those the retailer wants to keep open.

Barneys said Monday that it has resolved creditors’ concerns about whether the loan arrangement with Brigade is really enough to continue bringing in inventory long enough to nail down a buyer.

The retailer said it had agreed to increase its consignment facility, which would help pay for inventory during the bankruptcy, to $40 million from $30 million, according to a legal filing. The concession followed objections filed Friday by the official unsecured creditors’ committee, whose members include Prada USA Corp., Chloé and other vendors and landlords.

Taking into account this increased consignment facility, the DIP arrangement would actually provide up to roughly $70 million in “new capital” to buy inventory and keep operating while pursuing a sale, and the total amount of the DIP facility overall would be $257 million, according to Barneys.

“Without the DIP facility, there is a substantial if not inevitable risk that the debtors, together with their employees, suppliers and landlords, will suffer the same fate as other retail debtors: a fire-sale liquidation and a serious deterioration of creditor recoveries,” Barneys wrote in its filing.

The unsecured creditors’ committee had generally argued that the DIP arrangement, and the fees it entails, would end up leaving too little for Barneys’ ongoing operations and its creditors after paying the retailer’s more than $190 million in secured pre-petition debt. For instance, the committee had objected to an “enhancement fee” under the DIP arrangement consisting of 37.5 percent of any sale proceeds that would be left over after paying off the DIP loans and other costs.

Barneys said it reached the settlement with the committee on Monday after “extensive negotiations” on such contested issues.

The enhancement fee is now cut to 25 percent of sale proceeds, and it would be paid after other approved administrative claims, and allocating $8 million for unsecured creditors, according to Monday’s filings. An attorney representing the creditors committee said in a statement Tuesday that it was placated by the resolution.

“These concessions, including the DIP lenders agreeing to limit entitlement to the enhancement fee to 25 percent and only after the unsecured creditors receive $8 million, agreeing not to credit bid the enhancement fee, and agreeing to leave avoidance actions unencumbered, improved the DIP financing package and led to a resolution of the committee’s objection,” said Bradford Sandler of Pachulski Stang Ziehl & Jones LLP, who represents the official committee of unsecured creditors.

“Resolution of the unusual DIP facility along these terms is a critically important step in allowing Barneys sufficient runway to pursue a going concern transaction,” he said.

Morris had previously granted interim approval for the $217 million DIP loan, first for $75 million after Barneys filed for Chapter 11 on Aug. 6, and then for the remaining $142 million after a hearing in mid-August. The final hearing on the DIP arrangement is scheduled for Wednesday.

The retailer emphasized on Monday that it had obtained the best financing it could by targeting some two dozen sources of funding.

And it brought up, once again, its 11th hour scramble on the day of its bankruptcy filing to line up new lenders — the company had gone into the proceedings with a proposed $75 million in financing led by Hilco Global and Gordon Brothers, but revealed later that day that it had instead decided to go with financing from Brigade and B. Riley Financial Inc.

“The DIP facility contains hard-fought, arms’ length, market-tested terms that are the byproduct of a 45-day process, including an apples-to-apples bidding war with an alternative funding source — i.e., Hilco — much of which occurred in front of the court during the first day hearing,” Barneys said in its filing Monday.

“All parties agree that a going concern process is the optimal path forward and there is no viable, let alone higher or otherwise better, alternative to fund that process at this time,” it said.

Barneys is still contending with the U.S. Trustee’s own separate objections to the DIP arrangement.

The trustee has taken issue in particular with Barneys’ proposal to engage Great American Group LLC to liquidate the stores it is closing. Great American is a subsidiary of B. Riley Financial Inc., so its engagement in this context poses a conflict of interest, the trustee argued Friday.

“Great American may be more concerned that its affiliates fully recover their investments with the least amount of risk, rather than maximizing the return to all creditors,” the trustee argued in a filing Friday.

Barneys has disagreed that the arrangement poses a conflict, and argued Monday that the trustee hadn’t pointed to any better sources of financing that the retailer could have turned to instead.

Once the financing is wrapped up, the company can get down to work for real and find a buyer.

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