By and
with contributions from Jean E. Palmieri
 on October 4, 2019
Barneys

Barneys New York might just have found its savior — or at least its stalking horse. 

The retailer’s attorney told a New York bankruptcy court on Thursday that it is in “advanced negotiations” with a suitor preparing to acquire the luxury retailer as a going concern. This would-be buyer is working to hammer out go-forward arrangements with other interested parties, including the landlord for Barneys’ Madison Avenue and Beverly Hills flagships. 

Multiple sources identified the front-runner as Sam Ben-Avraham, the Kith investor and retailer who started the Project and Liberty Fairs trade shows, with the sale price said to be in the neighborhood of the $220 million floor value previously identified by the court.

While five parties officially indicated their interest in Barneys last week, Ben-Avraham was said to be one of the two players interested in taking the whole company as a going concern, while other players were more interested in the intellectual property or other assets. Among the other players said to have taken a close look at Barneys were Russia’s Mercury Group, which could not immediately be reached for comment, as well as Authentic Brands Group, Nordstrom Inc. and Neiman Marcus parent Ares.

If Ben-Avraham did successfully pull together a deal, it would give him a higher profile in the industry, a new outlet to help build brands and access to Barneys’ $240 million web business, which is seen as a big part of the company’s potential going forward. Ben-Avraham has shown his interest in e-commerce before, testing a store on Farfetch in 2016.

The retailer’s attorney, Josh Sussberg of Kirkland & Ellis, did not disclose the potential buyer’s identity at the hearing, but told the court that Barneys was optimistic that it would have an agreement “signed, sealed and delivered” by Oct. 11. A hearing is expected to take place on that day before Judge Cecelia Morris, who has been presiding over the case in Poughkeepsie, N.Y.  

Barneys declined to comment on the process.

However, Sussberg struck a note of cautious optimism to the court Thursday.  

“I would like to say we appreciate the efforts of everyone in the room,” he told the court. “The [discussions] went up until the moment we walked in, though I’m not sure every detail is ironed out.”  

“I don’t want to spike the ball before we’re in the end zone,” he told the court. 

Details about the price of the contemplated deal weren’t immediately clear, but the retailer has previously told the court that a “floor price” for Barneys as a going concern would be around $220 million. The retailer’s chief restructuring officer Mohsin Meghji had offered that estimate in September for a “floor value” that would include some $195 million in secured debt and roughly $25 million in administrative and priority claims. 

The potential buyer is negotiating details including Barneys’ rent terms with landlords, Sussberg told the court Thursday. If the deal is finalized by Oct. 11, the interested buyer would become a stalking horse — or the baseline bid — at an auction that would take place on Oct. 24. 

If the deal doesn’t materialize by that date, Barneys’ debtor-in-possession lenders Brigade Capital Management and B. Riley Financial Inc. could ask the court to liquidate the company. The lenders provided Barneys with a DIP package that includes a roughly $217 million loan and have been trying to move the process along to get buyers to the table to ensure the company continues.  

Barneys’ unsecured creditors committee, a group that includes vendors, landlords and an employees union, is eager to see the company sold. 

“In the view of the committee, a liquidation at this time would be unreasonable, considering how far along we are and how much progress on the sale process there has been,” said Bradford Sandler of Pachulski Stang Ziehl & Jones LLP, who represents the committee. 

Douglas Hand, an attorney at Hand, Baldachin & Amburgey who works with many designers, said a sale of Barneys as a going concern is much more preferable for vendors.

“You’re rooting for there to be a viable bid,” Hand said. That’s because a sale of the whole business will garner more money to pay back creditors than the fire sale of a liquidation. It would also maintain Barneys and keep open the possibility of future orders and a continuing business.

Even so, vendors who were caught up in the bankruptcy can only hope to see some portion of the money they’re owed. “It’s going to be pennies on the dollar no matter what — or nothing,” Hand said.

The August Chapter 11 filing ensnared a who’s who of designer names, including The Row, which was owed $3.7 million; Celine Inc., $2.7 million; Yves Saint Laurent America Inc., $2.2 million; Balenciaga America Inc., $2.1 million; Givenchy Corp./LVMH, $1.9 million, and Gucci, $1.8 million.

Barneys’ professional services bills have started to come in and its attorneys at Kirkland & Ellis have sought more than $1.5 million in legal fees and expenses for its work from the filing on Aug. 6 through Aug. 31, according to court papers submitted on Wednesday.

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