Barneys New York won final approval on Wednesday for its debtor-in-possession package that includes the much-discussed $217 million in financing and a newly increased $40 million consignment facility. The step now leaves the retailer to its ambitious goal of securing a buyer by late October.
U.S. Bankruptcy Judge Cecelia Morris granted final approval to the financing package, which the retailer had arranged at the last minute after its Chapter 11 filing on Aug. 6, with DIP lenders Brigade Capital Management and B. Riley Financial Inc.
Standing before Judge Morris in her sunlit courtroom in Poughkeepsie, N.Y., Barneys attorney Chad Husnick of Kirkland & Ellis LLP made an emphatic case that the financing arrangement offered the very best terms the retailer could find to help it through its bankruptcy and stay in business.
“The Brigade financing represents the highest and best offer we have available,” Husnick told the court at Wednesday’s hearing.
In its original form, the financing proposal had sparked some controversy. Barneys has already used the financing to pay off $192 million in secured debt to pre-petition lenders including Wells Fargo, an aspect of the deal that had drawn concerns among creditors about how much liquidity it actually gave the retailer to work with.
But on Monday, Barneys and the unsecured creditors committee, which had been appointed in mid-August, had come to an agreement. For one, the package would include an increased consignment facility, which would help Barneys continue buying inventory, raised now to $40 million from $30 million. It’s not clear how much in consignment facility funds currently remain, but Husnick described it as a mark of the DIP lenders’ drive to keep it in business.
“The consignment facility provides a low-cost alternative that doesn’t put vendors at risk, putting it on the DIP lenders instead, and it was a risk they were willing to take,” Husnick told the judge.
The updated DIP arrangement would also scale back a planned enhancement fee to the DIP lenders, and only pay the fee after $8 million of any sale proceeds are set aside to pay off unsecured pre-petition debt.
Bradford Sandler of Pachulski Stang Ziehl & Jones LLP, who represents the official committee of unsecured creditors, described the financing package as a potential savior for an institution whose collapse he said would cause “a severe adverse ripple effect.”
“The retail industry is in distress [and] the people in this courtroom are on the frontlines of trying to save retailers,” Sandler told the court.
A retailer having to shut down “would have an adverse impact on landlords, on vendors and on its employees who live from paycheck to paycheck,” he said.
As part of deadlines negotiated with its DIP lenders, Barneys has until Oct. 24 to find a buyer, and needs to close any going concern sale shortly after by early November.