By Sindhu Sundar and David Moin
with contributions from Evan Clark
 on October 31, 2019
Signage for Barneys New York department store is displayed on the store's window, 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 is trying hard to keep the door open — but it’s closing fast.  

Judge Cecelia Morris, who’s been overseeing the luxury retailer’s bankruptcy, approved a $271.4 million deal to sell the company to Authentic Brands Group and B. Riley Financial Inc. 

But even as that process moves to its official conclusion at 10 a.m. on Friday, the company and would-be buyers are still racing to come up with an alternative before that seemingly final deadline.

“We have a lot of hope, but hope is not a strategy,” said Barneys’ attorney Joshua Sussberg of Kirkland & Ellis at a key court hearing in Poughkeepsie, N.Y.  

Both David Jackson, chairman of Solitaire Partners who is working with Arabian Oud, a large fragrance business, and a group led by Kith backer Sam Ben-Avraham have been pushing hard to buy Barneys. 

“They’ve been working feverishly to get their financing in order,” Jason Rubin, a partner at Akin Gump Strauss Hauer & Feld, who represents Solitaire Partners, told the court. “I know it’s late in the game, but this is a Hail Mary. They’re working hard, but they’re not there yet.”

Barneys’ nearly three-month-long sprint to Thursday’s sale hearing was marked by breathless efforts to see the company sold in a going concern sale that would preserve its stores, support vendors, and keep its staff employed.

In the course of the bidding process that played out in recent weeks, players including Ben-Avraham surfaced as potential saviors, making public appeals and scrambling to assemble financing. But as they jockeyed toward the finish line, with multiple deadline extensions to submit viable bids, ABG emerged as a front-runner.

At Thursday’s hearing, there was a sense that a going-concern bidder could still come through with more time. Perhaps, if the deadlines — imposed under agreements with clock-watching debtor-in-possession lenders Brigade Capital Management LP and B. Riley — had not been so stringent.

Alicia Leonhard, an attorney for the U.S. Trustee in the case, presented a blunt diagnosis.

“This is an unfortunate outcome,” she told the court, referring to a sale of Barneys assets to ABG that would result in liquidations. “The problem is short deadlines to consummate a sale, which were…imposed by the DIP lenders, which gave an advantage to the buyers, one of whom is B. Riley.”

Early on in the hearing, Morris encouraged the parties to continue working on a solution that would preserve Barneys as a going concern. “I have six conference rooms waiting for you,” she said. “I’m just trying to hear an alternative.”

But ABG’s attorney, Richard Chesley of DLA Piper, objected to the notion of further delays. “We have abided by the rules and we came here to have a sale-order approved,” he said.

Morris did approve that sale-order and brought the hearing to a close, though she did not exclude the possibility of a last-minute bid coming in, when Sussberg told her that he would inform the court if anything changed before the sale’s expected closing at 10 a.m. on Friday.

“It is a sad day, I think, really,” Morris said at the end of the hearing.

Following the decision, Barneys released the following statement: “Earlier today, the court approved the sale of Barneys New York to Authentic Brands Group, in partnership with Saks. Importantly, the sale has not concluded and other bidders can still come forward before tomorrow’s closing. Over the past several months, we have worked diligently with the court, our lenders and creditors to maximize the value of Barneys in this sale process, and we continue to work with all relevant parties towards the best solution for Barneys’ employees, designers and vendors, and customers.”

Already, questions surrounding Barneys’ fate have rattled vendors, who’ve faced the fraught choice of shipping to a retailer whose inventory could very well end up in a liquidation sale, as well as the hundreds of employees who have been waiting to hear if they’d still have a job come November. 

The creditors committee, which includes vendors, landlords and a union representing some 800 Barneys employees, had appeared to be holding out hopes that Ben-Avraham’s going concern bid would prevail. 

While ABG’s stalking-horse deal envisions liquidating Barneys inventory, Ben-Avraham’s will-he-won’t-he efforts over the past several weeks had kept the hope alive for the retailer to more or less maintain its current presence, keeping at least five stores open. 

In a court filing on Wednesday, the committee expressed regret at the prospect of a liquidation, writing that such a fate would leave Barneys “like so many other distressed retailers that sought bankruptcy protection as their last hope for a “fresh start” only to learn that it was their “last stop” before going out of business.” 

Barneys filed for Chapter 11 protection on Aug. 6, after months of financial strain as vendors pulled back and talks with investors on potential financing and sale prospects fell short. In its time of uncertainty, the retailer hired professionals including Kirkland & Ellis LLP and M-III Advisors LP, whose managing partner Mohsin Meghji is Barneys’ chief restructuring officer in the bankruptcy. 

A declaration that Meghji filed early in the proceedings narrates the retailer’s dramatic ascent from humble beginnings in 1923 as a small men’s retailer in Manhattan’s Chelsea neighborhood, to a prestige tastemaker launching edgy new brands to the scene. After decades as a local department store, the retailer sought to expand. But its tie-up with Japanese retailer Isetan Co. to that end was relatively short-lived and combustible, and led to its first bankruptcy filing in 1996. 

From that point, Barneys began to change hands, in a series of ownership changes that preceded its more recent operational struggles. First, Bay Harbour Management LC and Whippoorwill Associates Inc. become controlling shareholders, then they sold their stake to Jones Apparel Group Inc., which in turn passed off its stake in 2007 to funds tied to Istithmar World, a state-run business in Dubai. The hedge fund Perry Capital took a majority stake in the business in 2012 in a debt-for-equity swap. Perry took Barneys bankrupt last August.

Solitaire’s Jackson is a former ceo of Istithmar World. If Solitaire did win the bidding for Barneys, it would continue to operate the luxury retailer as a going concern, though pared down.

Arabian Oud has over 900 stores worldwide selling fragrances, incense, oriental perfumes and oil perfumes, according to its web site. Arabian Oud was founded by Sheikh Abdul-Aziz Al Jasser. The first Arabian Oud shop opened in Riyadh, Saudi Arabia. The company says it averages 25,000 transactions per day and produces 25 million bottles of perfume a year. “Oud” is an Arabic term for the “highly prized incense that is cultivated from the Agarwood tree,” the web site indicates.

The extent of Solitaire’s potential offer is not known.

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