Barneys New York faces the uphill challenge of securing a buyer by late October in a hostile retail market. But a New York bankruptcy court ruled on Wednesday that if the retailer accomplishes its coveted going concern sale, its two top executives could see a bonus payday of roughly around $1 million or more.
U.S. Bankruptcy Judge Cecelia Morris approved Barneys’ proposed incentive plan to reward chief executive officer Daniella Vitale and chief financial officer Sandro Risi if they accomplish a sale at a higher price than a minimum “floor value,” an amount that would include the costs of secured debt, as well as administrative and priority claims. The retailer’s chief restructuring officer Mohsin Meghji testified to the court Wednesday that the floor value is currently estimated at around $220 million, a figure that includes some $195 million in secured debt and roughly $25 million in administrative and priority claims.
Under the incentive plan, Vitale and Risi would share at least around $1 million in incentive payments if they get Barneys to a going concern sale that is $1 million or more higher than the floor value, whatever that floor value number is set to be later in the process. The executives can receive additional incentive payments if the sale price meets certain higher targets.
“I applaud them,” Judge Morris said from the bench, referring to Vitale and Risi, after Barneys’ attorney Chad Husnick of Kirkland & Ellis LLP described their apparent round-the-clock efforts to pursue a sale. “We have two people really striving to make this [sale] happen,” the judge said.
Vitale in particular has been traveling, including to Europe, to pitch a streamlined version of the retailer — sans the 15 underperforming stores it decided to close as part of the Chapter 11 proceedings — to potential buyers, Husnick told the court.
So far, multiple suitors have shown interest in buying the company in whole or in parts, including its intellectual property and e-commerce platform, Husnick told the court, though he did not remark on the identities of any buyers.
Still, getting someone to purchase Barneys fairly intact in a going concern sale that would include at least two of its main flagships — namely those on Madison Avenue and in Beverly Hills — as well as its e-commerce platform, will be a challenge, Meghji testified Wednesday.
Meghji, who said he has been in daily contact with Vitale and Risi for months, testified that that there have not yet been buyers showing inclination to pay around $200 million for the retailer.
“Right now, not yet, but we hope to get there,” he testified.
The thrust of Meghji’s testimony and Husnick’s arguments to the court was that Vitale and Risi — whose base pay Meghji said are $1.25 million and $470,000, respectively — are going to great lengths to secure a going concern sale. Given their efforts, it was important to provide for an incentive payment that would align the executives’ goals with that of the company and of creditors who want to see the retailer sold and keep open as many of its remaining seven stores as possible, they said in court.
But the proposal drew objections, including from the union representing nearly 800 Barneys employees comprising retail sales and warehouse workers, among others.
Attorneys for the New York-New Jersey Regional Joint Board, which is affiliated with the Workers United union, had raised concerns in court filings that the incentive proposal would reward the executives at a time when the company already “is substantially behind in contributions to benefit funds providing health and retirement benefits required under the [collective bargaining agreements] with the Joint Board.”
On Wednesday, Thomas Kennedy of Cohen, Weiss and Simon LLP told the court that the incentive plan also didn’t do enough to ensure that enough union workers’ jobs would be protected in a going concern sale.
For instance, if Barneys completes a going concern sale with just its two main flagships and e-commerce platform, he argued that more than half of the union employees could still lose their jobs.
As Judge Morris appeared sympathetic to Kennedy’s concerns, the attorneys for Barneys and the union huddled during short breaks at the hearing to negotiate. Ultimately, they agreed to include a distribution facility in Lyndhurst, N.J., which includes more than 200 employees, in the definition of a going concern sale that Vitale and Risi would have to shepherd in order to qualify for the incentive payments.
“We will continue fighting for all the employees,” Kennedy told WWD.
The final incentive plan that Judge Morris approved Wednesday also has the support of the rest of the unsecured creditors’ committee, which had previously pushed for revisions to the incentive plan, including additional incentives for the executives if they help execute a sale with more stores open. The creditors’ committee has said its goal is to see Barneys sold in a going concern sale with the largest possible footprint.
In addition to its secured debt, Barneys has roughly $135 million in general unsecured claims, according to court documents.