Barneys New York was back in bankruptcy court on Wednesday — and passed a key milestone as it winds its way through the process in hopes of finding a buyer to avoid a liquidation.
At a hearing in Manhattan, Judge Cecelia G. Morris gave the luxury retailer the go-ahead to borrow the remaining $142 million of its proposed $217 million debtor-in-possession financing package.
The DIP financing is led by Brigade Capital Management and B. Riley Financial Inc. and was arranged at the last minute — after the company filed for bankruptcy last week and before it appeared in court for first-day proceedings. The court previously gave Barneys access to the first $75 million of the Brigade financing.
The financing package is seen as offering good terms for Barneys, which can use the funds to pay off its pre-petition secured debt held by Wells Fargo and others. The move would effectively replace the pre-petition secured lenders with DIP lenders and can simplify the process for Barneys, as it frees the retailer to deal with just new lenders while getting on a fast-track to find a buyer for the business. Under its DIP financing terms, the retailer has until Oct. 24 to line up a deal, according to the company.
“The proceeds will go toward paying off the remaining pre-petition secured debt,” Chad Husnick of Kirkland & Ellis LLP, an attorney for Barneys, said during the hearing. “And [the DIP financing] will provide the company with working capital.”
The implications for vendors are less clear at the moment, though Barneys is encouraging them to continue shipping.
Wednesday’s ruling essentially grants Barneys’ full proposed DIP financing on an interim basis, which means it’s still subject to potential objections by unsecured creditors. The afternoon hearing took place in a small courtroom in bankruptcy court in Manhattan, where wooden pews were packed with attorneys for Barneys, Wells Fargo, and vendors who will soon get their say in the process. The final hearing on the DIP financing is scheduled for Sept. 4.
On Thursday, the unsecured creditors will meet to form a committee under the U.S. Trustee’s direction. The process typically involves dozens of unsecured creditors, including vendors, landlords, and sometimes unsecured bondholders, vying for the handful of spots on the committee. The trustee is expected to choose around seven parties whose interests are representative of the larger group.
Barneys filed for Chapter 11 protection after struggling for months to make ends meet. In court filings, the retailer said its liquidity troubles were precipitated by rent increases. At its Madison Avenue flagship alone, its rent shot up from $16 million to $30 million after an arbitration ruling last year.
The retailer’s problems came to a head in the weeks leading up to the bankruptcy, with management, attorneys and financial advisers racing to find financing and trying to line up a buyer.
“Cash-on-delivery demands have paralyzed the inventory stream,” said chief restructuring officer Mohsin Meghji in a court filing. “Efforts to raise incremental liquidity or implement an actionable holistic solution to these issues, in each case on an out-of-court basis, did not bear fruit.”
Last week, the retailer announced that its new debtor-in-possession financing led by Brigade Capital and B. Riley would replace the $75 million in financing from Hilco Global and Gordon Brothers that it had brought into the proceedings.
Barneys has sought to reassure the public and vendors that its new financing will help it attract qualified buyers and keep running business as usual. In a FAQ posted by Barneys, the retailer said it was counting on vendors’ continued support and that it was authorized to pay them for goods and services provided after it filed for bankruptcy protection.
Even so, the retailer’s considerable pre-petition debts may pose ongoing concerns for vendors.
In the meantime, Barneys is doing its best to show that it’s still in business. Customers can still order online through its web sites, and the retailer is keeping its Madison Avenue and Beverly Hills flagships open, as well as others in Manhattan, Boston and San Francisco. Its warehouse locations at Woodbury Common and Livermore will also stay open.
But its plan as part of the bankruptcy is to close 15 other locations, including flagship and warehouse stores. Its Las Vegas store was already shuttered this week, with a bittersweet parting note on a sign in front that read, “Thanks to each and every one of you for shopping with us here at Barneys New York Las Vegas. It has been our privilege.”