The race is on to buy Barneys New York out of bankruptcy — and it looks like Sam Ben-Avraham has some competition from Gary Wassner, head of factoring company Hilldun Corp. — and potentially others.
WWD reported that Wassner was in the mix and in talks with trade show veteran and Kith backer Ben-Avraham on Monday. But instead of teaming up, the two are now squaring off, according to a source familiar with the case.
Wassner declined comment on Thursday, but an independent bid from him could give vendors a little extra reassurance heading into an uncertain holiday season and future for the retailer, where the behind-the-scenes financing picture is changing day by day.
Barneys said in court filings Thursday that it was wrapping up talks with “multiple bidders” vying to become the stalking horse, which would provide the starting bid in an auction scheduled for Oct. 24. That baseline bidder could be chosen by Friday when attorneys for the retailer, its creditors and lenders will return to Judge Cecelia Morris’ bankruptcy courtroom in Poughkeepsie, N.Y.
The debtor-in-possession lenders — Brigade Capital Management and B. Riley Financial Inc. — have proposed a deadline for the parties to reach their stalking horse agreement by the stroke of midnight. Barneys and the creditors’ committee said there is “a handshake” to extend the deadline to Oct. 14, but the DIP lenders have sought to keep the reins tight on whether they’ll actually allow such an extension.
“The debtors and their advisers are working around the clock to negotiate the terms of an acceptable form of asset purchase agreement that would, at a minimum, pay the DIP Parties in full,” Barneys and the unsecured creditors said in their filing Thursday. The DIP amount to be repaid is roughly $219 million, according to court filings.
As the parties worked to hammer out a deal, Barneys was able to hold off on paying $4 million in rent payments that came due on Oct. 1, according to court documents. The rent deferral reflects the landlord’s willingness to work out a deal.
But as the company continues its high-wire effort to find a buyer and avoid liquidation, there are still more questions than answers.
For instance, it’s not clear just where all this money to buy the chain is going to actually come from — especially given that it is not profitable, having lost $16.3 million during just the last three weeks of August. Barneys’ sales are also said to have been disappointing during the bankruptcy as many vendors held back shipments.
If either Ben-Avraham or Wassner does pull together an official offer and become Barneys’ stalking horse headed into the auction, there will be some loose ends to tie up. As the lawyers suit up, here are five issues that are likely to reshape a fashion institution.
1. New Owner or Liquidation?
Barneys brass — lead shareholder Richard Perry and chief executive officer Daniella Vitale — have been looking for an acquirer for at least a year with no luck. After vendors turned off the spigot this summer, Barneys was forced into a Chapter 11 filing with no suitor lined up, leaving the company to find a deal in bankruptcy or be liquidated.
While Ben-Avraham and Wassner have emerged as leading contenders to scoop up the firm as a going concern, another party could still swoop in and outbid them at the auction.
If no stalking horse deal is found, the retailer could face liquidation, putting its intellectual property, inventory and other assets up for grabs. The creditors’ committee has indicated recently that it will fight lenders’ moves toward liquidation if it believes a deal could still be close.
“The creditors committee will carry out its fiduciary duties and insist that the court retain its power to hear any dispute among the parties,” said Bradford Sandler of Pachulski Stang Ziehl & Jones LLP, who represents the creditors’ committee.
Sandler declined to comment on the sale process, but said there are many interested parties.
Authentic Brands Group, Nordstrom Inc., Neiman Marcus parent Ares and Russia’s Mercury Group have all looked into buying at least part of the company and could still reemerge in the process.
2. A Trade Show Guy or a Factor Running Barneys?
Ben-Avraham has done a little bit of almost everything. He’s been a retailer. He’s backed Kith. He gets credit for helping to spark the sneaker revolution. And he started the Project and Liberty Fairs trade shows. But it’s not clear just what he’s planning for Barneys.
Ben-Avraham has been incommunicado on all things Barneys, but a source close to the situation described his plan as unconventional, which makes sense given that so many more conventional buyers have looked at, considered and passed on buying the retailer.
A bid from Wassner also has many question marks, but could certainly reinforce the retailer’s designer ties and could open up new opportunities.
Both groups seem to not only have some kind of vision for the business, but relevant expertise.
“It seems like it’s not another instance of someone from Wall Street or a real estate investment trust coming in and trying to make a buck,” said Jeff Trexler, associate director of the Fashion Law Institute at Fordham University. “These are people who are interested in the industry, and who understand the industry from different perspectives.”
3. What’s the Rent?
Any deal to buy Barneys as a going concern would involve discussions on rent concessions. Companies in bankruptcies, especially retailers, usually have some leverage because the bankruptcy code allows them to reject leases. That means any claims for breach of contract or rent it owes from before the bankruptcy would be treated as a general unsecured claim for which landlords are unlikely to recover much.
But in this case, the landlord of the retailer’s two main flagships — on Madison Avenue in New York City and in Beverly Hills in Los Angeles — has an edge in negotiations. The landlord owns prime luxury commercial real estate, as opposed to more run-of-the-mill malls, and the two locations in question are essential for Barneys.
“More often we see retail bankruptcies with lots of tenants and lots of spaces that are less desirable, and what the debtor is doing there, is going through the portfolio and choosing which spaces to keep and which not to,” said Brian Free, a commercial litigation attorney at Hillis Clark Martin & Peterson P.S. with expertise in bankruptcy. “Having a few flagships that may make or break the business, that’s more unusual. Yes, the landlord can tie their decision based on both leases, and so can the tenant. The disruption is going to be higher to the tenant. Can Barneys really continue to operate if they have to shut down [those locations] and move?”
Still, for the landlords, these are large spaces — Barneys’ Madison Avenue location is eight floors — and finding replacements can be tricky.
“It’s desirable, but it’s also large and high-end, and how many tenants can fill a space like that?” said Free. “That’s a market question and that’s exactly what the landlord will be looking at.”
Negotiations could potentially also involve arrangements for Barneys to retain those physical spaces but with a smaller footprint. It could be easier for landlords to find new tenants for the few floors rather than a new one to occupy the whole space.
“For any other replacement tenants it likely would not be as much of a bite to chew off,” said Michael Riela, a partner at Tannenbaum Helpern Syracuse & Hirschtritt LLP who advises on corporate restructuring issues.
4. What Can Make Barneys Profitable?
Barneys will shed its debt through the bankruptcy, which helps its starting position. But it will need to earn back the trust of vendors and likely invest more in its digital infrastructure, experts said.
The retailer will also need to be amenable to new arrangements, including concession, or shop-in-shop, models, observers said. That means ceding more control to brands in conceptualizing their own space within Barneys’ stores, allowing them to do what they do best — know who their customer is and how to engage them, said Trexler.
“You want to be more adaptive, using legal structures and business structures to strengthen people’s connection to the store, for both consumers and vendors,” he said.
Barneys might also have to switch up its product mix. Long known as a spot for a fresh take on what’s cool, the retailer has also shied away from bringing bigger brands that could act as an anchor in its assortment and drive traffic to some of the smaller, hipper names.
5. Why Does Barneys Still Matter?
The fashion industry’s post-mortem since Barneys’ bankruptcy filing has surfaced explanations for its failure and some nostalgia about its former appeal and cultural significance in New York. Some see Barneys as the peak of coolness in fashion — a buzzy store, known for its of-the-moment designers.
But others see the brand, with its ultra-expensive products, as being dislocated from an older identity that represented upward mobility and success.
“Fred’s went from a buzzy place to meet and do business, to putting people on an ice floe with a lobster salad,” said Trexler, referring to the store’s chain of cafés, once a stomping ground for the city’s power brokers. “It has a retirement home kind of feel.”
An advertisement for Barneys released in 1970 captures its old essence. The spot, titled “Men of Destiny,” envisions the era’s cultural icons, like Humphrey Bogart and Louis Armstrong, playing together as children with a young Barney Pressman, boasting about their future ambitions.
The script goes heavy on the poignance of aspiration. When it’s young Barney’s turn to reveal his destiny, he says “I don’t know, you’ll all need clothes.”
For Barneys to stay relevant, it needs to tap into that past, said Trexler. That would mean speaking coherently to a more culturally attuned narrative of success, rather than simply embodying a stagnant site for wealth, he said.