It’s time for any would-be buyers for Barneys New York to step forward.
The bankrupt retailer faces a key deadline today — it must secure formal expressions of interest from potential buyers.
If no buyer comes forward with a “reasonably acceptable” indication and Barneys cannot work out a revised budget with its lenders, the company could face liquidation.
Barneys’ chief restructuring officer Mohsin Meghji, managing partner at restructuring and financial advisory firm M-III Advisors LP, previously estimated a roughly $220 million “floor value” for a sale. That would include the costs of the retailer’s secured debt, as well as its administrative and priority claims.
There is a narrow two-day window, until the end of the day Friday, to address potential disputes, according to a filing in the case.
But there are also key questions that any buyer would want to consider while looking at a company that is rapidly losing money.
A court filing detailing Barneys’ finances, from when it went bankrupt on Aug. 6 through the end of that month, illustrates how tight of a jam the company is in.
Over the three-plus weeks that saw Barneys start to close several stores and begin its journey through the Chapter 11 process, the company logged revenues of $31.6 million. But that was nowhere near enough to cover $17.3 million in cost of sales or $29.8 million in selling, general and administrative expenses. The result was a loss of $16.3 million for the period.
At the end of August, Barneys had inventory valued at $191.9 million and $10.3 million in cash on hand — but clearly it can’t sustain such steep losses for long.
As one source familiar with the situation noted, it’s time for Barneys’ suitors to “put up or shut up.”
The luxury retailer has long captured the imagination of dealmakers with a particular interest in fashion. And its attorneys told Judge Cecelia Morris this month that Barneys chief executive officer and president Daniella Vitale was traveling around Europe and the U.S. to meet with potential investors.
But the company’s efforts to find a buyer before the bankruptcy certainly didn’t pan out — neither Vitale nor controlling shareholder Richard Perry were able to secure a deal to prevent a filing. Now the Chapter 11 process has changed the equation by cutting the company’s debt load and helping it exit 15 money-losing stores.
Nonetheless, it’s not an easy buy. A number of parties are said to have done at least some of the due diligence necessary to determine their interest, but it’s not clear just how many will commit. One source estimated three or four players could stay in the process.
Authentic Brands Group has long been keen on Barneys. And there is also talk about a strategic that has been exploring the possibility of a deal. Sources said Neiman Marcus-parent Ares Management took a passing interest, but has since taken a step back.
The difficulty, in part, is that any would-be buyer would likely not only have to cover the company’s bankruptcy financing and costs — it would also have to come away with a viable business.
And buyers would have to have a plan for how to structure that.
Barneys’ rent — especially on Madison Avenue, but also likely in Beverly Hills — would have to be renegotiated at some undetermined price. The business needs more inventory to sell and vendors are still wary when shipping to Barneys (a dynamic that is said to have been hurting sales recently). A representative for Barneys has previously said the retailer is working directly with a number of brands, as usual, and those brands are still shipping to the retailer and processing orders for the holiday season as well as spring and resort 2020.
Potential buyers may also look at updating the company’s online presence. Any buyers who intend to supercharge Barneys’ e-commerce business — which accounted for 30 percent of its $800 million in sales last year, growing 12.4 percent to about $240 million — might also have to spend more to update the IT infrastructure.
Attorneys for Barneys and its unsecured creditors’ committee have told the New York bankruptcy court overseeing the case that their goal is to see Barneys sold with as many stores remaining open as possible. Barneys has received some $217 million in DIP loans in a deal with Brigade Capital Management and B. Riley Financial Inc.
Representatives for Barneys and Brigade declined to comment Tuesday. B. Riley and an attorney for the unsecured creditors’ committee did not respond to requests for comment.
At a minimum, the company is aiming to find a buyer for at least its e-commerce platform and two flagships and a distribution facility in Lyndhurst, N.J. — that’s certainly one threshold requirement for Vitale and chief financial officer Sandro Risi to qualify for incentive payments for helping to close a going-concern sale.
Under the terms of that sale maximization incentive plan, which was approved earlier this month by Morris, Vitale and Risi could share roughly $1 million or more if they help facilitate a sale that meets certain minimum requirements. The executives can also qualify for additional payments of $150,000 for each store sold beyond four stores, according to the plan.
If Barneys is unable to find a new home as a going concern and heads toward a liquidation, one of the players in the mix now, or in the wings, could still buy the name or other assets.
But that would be a whole new Barneys.