Centric Brands — licensee to more than 100 fashion brands — has gone to bankruptcy court with a plan to be taken over by its private equity lenders.
The New York-based company, which makes goods for Tommy Hilfiger, Calvin Klein, Spyder, Under Armour and more, filed for Chapter 11 protection in federal bankruptcy court in White Plains, N.Y. Centric secured $435 million in debtor-in-possession financing from Blackstone, Ares Management and HPS Investment Partners — lenders that have a plan to take control of the business through a restructuring support agreement.
“The agreement contemplates a timely emergence from the process with a plan to substantially reduce the company’s funded second lien indebtedness by approximately $700 million, thereby positioning the business for future growth and success,” Centric said.
“Today’s agreement marks the beginning of our next chapter as an even stronger company and builds upon our progress to date executing on our long-term strategy,” said Jason Rabin, chief executive officer of Centric Brands. “The current crisis has significantly impacted companies across all sectors. The pandemic disrupted many of our wholesale accounts’ ordering and constrained our cash flow. However, we are confident that with added flexibility in our capital structure, we will be well-positioned for long-term success during this period and beyond. We thoroughly evaluated all possible strategic options to address this environment. After extensive review, we determined that partnering with our current lenders to pursue this path will result in a stronger financial position and more resources to support future growth, while allowing us to focus on serving key stakeholders.”
Centric, which just bought the Zac Posen brand in February and also produces for Nautica, Michael Kors, All Saints, Jessica Simpson and others, expects to carry on with its business through the bankruptcy process.
Centric also owns Hudson and Robert Graham.
The filing added Centric to the growing list of companies that have filed for bankruptcy in the wake of the coronavirus, including J. Crew Group, Neiman Marcus Group and J.C. Penney Co. Inc.
Like many of those retailers, Centric Brands, which has more than 2,100 employees, also attributed its operational struggles to the COVID-19 pandemic. In April, the company furloughed some 1,346 employees and conducted what it called a “reduction in force” of 600 employees, according to a declaration by Anurup Pruthi, Centric Brands’ chief financial officer, filed on Monday.
“Due to the catastrophic impact of the global COVID-19 pandemic on the worldwide economy, the company has experienced direct negative impacts on business operations in the form of supply chain disruption, declines in sales activities, reduced customer orders, and demands for timely cash payments from production and distribution partners,” Pruthi said in the declaration.
“The near-total global shutdown caused by COVID-19 has materially and adversely affected the company’s entire business, both operationally and financially,” he wrote.
Centric’s significant debt load also paved the way to the bankruptcy filing. The company entered the proceedings with $1.7 billion in funded debt, in the form of term loans, revolvers and notes, according to court filings. Its first lien agents include Ares Capital Corp. and HPS Investment Partners.
The firm’s proposed $435 million DIP financing package includes a $160 million term loan and an up to $275 million asset-based revolving credit facility, according to a declaration filed Monday by James Baird, partner in the restructuring and special situations group at the investment bank PJT Partners, which is advising Centric Brands in the proceedings.
“Substantially all of the debtors’ assets are encumbered under their existing capital structure which, along with the debtors’ uncertain financial condition and the overall weakness in the retail and apparel industry (which has been exacerbated by the global COVID-19 pandemic), restricts the availability of, and options for, post-petition financing,” Baird wrote in his declaration.
The company also indicated it would seek permission to pay its essential, or critical, vendors up to $85 million of their pre-petition claims, an amount the company said is roughly a third of its trade claims.
As a result of the bankruptcy, Centric Brands may be parting ways with some of its partners — which could open up an opportunity for some brands to make a fresh start.
On Monday, brand owner Marquee Brands LLC said it was taking back the BCBG Max Azria and BCBGeneration licenses from Centric Brands and expanding its online business.
“Marquee is a brand owner that manages a portfolio of world-class assets under diverse business models including a ‘digital first’ mind-set where each of the directly managed brands is experiencing double-digit year-over-year growth on e-commerce, even during this crisis,” Diane Bekhor, senior vice president of brand management over the BCBG brands, said in a statement Monday.
“BCBG has a strong 30-year brand heritage and a devoted customer base and the brands will benefit significantly from this transition,” Bekhor said. “We are excited to have our hands on the wheel toward this next phase of growth and will be working closely with Centric to ensure a smooth transition.”
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