At a hearing in Delaware bankruptcy court on Tuesday, the cash-strapped retailer persuaded the judge to approve the terms of the $81.1 million stalking horse bid earlier this week by Authentic Brands Group and landlords Simon Property Group and Brookfield. The agreement sets the baseline for any other potential competing bids coming in, and sets a short deadline for them to arrive before a sale hearing that is tentatively scheduled for next week.
But the agreement had vocal detractors in court, including vendor and exporter groups who objected to the rapid timeline for rival bids. Mette Kurth, a partner at Fox Rothschild LLP representing an ad hoc group of Chinese exporters, told the court she knows of another possible bidder who is interested in submitting a competing bid but worrying there isn’t enough time to do so under Forever 21’s agreement with ABG and the landlords.
“There’s a strong sense of urgency,” she told the court.
Kurth is not representing the aspiring bidder, but has knowledge of their efforts, she told WWD after the hearing. She declined to identify the bidder.
“I’m aware of at least one other bidder who is interested in the process, and who is working to meet the current deadline,” she said. “They’re not sure if they can pull it together in that time frame.”
The extent of Forever 21’s dire finances came into focus as its advisers told the court it has run out of money and needs to seal a going concern transaction quickly. The retailer has not been taking merchandise since Jan. 17, and isn’t paying February’s rent, they said. In fact, under its agreement with ABG and the landlords, the buyers would pay its rent for February after their deal closes, if it does.
“When a retail company doesn’t take in inventory, everyone suffers,” Aparna Yenamandra, a partner at Kirkland & Ellis LLP representing Forever 21, told the court. “[Everyone has] taken pain in this case, and we understand it and appreciate it.”
On Tuesday, Judge Kevin Gross, who is overseeing the proceedings, also called out the fees and expense reimbursements envisioned under the deal, which he said were exorbitant for the $81.1 million purchase price.
The stalking-horse agreement, which Forever 21 revealed in a court filing Sunday, had included a $4.65 million break-up fee, and a $1 million overbid amount that any competing bidders would have to meet in order to beat out the stalking-horse bid. On Tuesday, the parties agreed to reduce those amounts, agreeing to a $3.1 million break-up fee instead, and a $300,000 overbid amount.
Yenamandra attributed the fees to the value of the deal, which she said includes not just the $81.1 million purchase amount, but also certain letters of credit and other liabilities that the ABG, Simon and Brookfield buyers would take on. Those liabilities include $53 million in trade debt owed to certain vendors.
But the retailer also owes more than $100 million in post-petition debts, that is, debts it has incurred since its Chapter 11 filing in September, an attorney for vendors objecting to the deal pointed out.
“This is truly a case where they had enormous claims [even] prior to filing, and it’s just been a double blow, and now we are pushed into a very abbreviated sale process,” Jeffrey Waxman of Morris James LLP, told the court.
Meanwhile, Simon Property seems sanguine about the prospects of refreshing Forever 21 through the deal. In an earnings call Tuesday morning, chief executive officer David Simon said he believed the deal would help right the Forever 21 ship and earn a return on the investment.
“With F21, we do think there is a business there, but it’s got to be turned around,” he said on the call. “And I’m not going to project today to you what those numbers are, but we’ve got our work ahead of us.”