Barneys New York, Inc. – All Change for DIP Financing as Gordon Brothers/Hilco Global Get Replaced by Brigade Capital Management and B. Riley Financial; DIP Financing Grows From $75mn to $218mn

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August 9, 2019 –  On August 7, 2019, the Court hearing the Barneys New York cases issued an order authorizing the Debtors to access $75.0mn in debtor-in-possession (“DIP”) financing to be provided by Gordon Brothers and Hilco Global. In frantic, last-minute developments, that has all changed. The Debtors have now filed a notice to amend the earlier order and have scheduled an August 14, 2019 hearing to have the order changed to reflect new lenders and a much larger DIP facility [Docket No. 89].

As the Court's first order made its way to the top of the Court's out tray [Docket No. 49] a major rewrite of the Debtors' DIP financing had already been submitted by the Debtors [Docket No. 40]. The Court's DIP financing order makes no mention of Docket No. 40, referencing only the Debtors' DIP financing motion [Docket No. 20] and an interim DIP hearing held on August 6, 2019. The last minute scramble seems a bit more Filene's Basement (RIBP, rest in bankruptcy peace) than Barneys, but the Debtors, who now have a commitment for $218.0mn of DIP financing, will care little about the financing documents strewn across the Court room floor.

In any event, Gordon Brothers and Hilco, who otherwise would have been combining the roles of DIP lenders and store closing consultants, are out as DIP lenders and apparently Brigade Capital Management, LP and BRF Finance Co. (a subsidiary of B. Riley Financial ) are in, each with a $37.5mn interim commitment. The big difference, not actually referenced in the Debtors' notice filed at Docket No. 40, but referenced in a press release issued by the Debtors (see below), is that the $75.0mn is part of a larger $218.0mn commitment. Otherwise the terms are largely identical, with the frothy interest rate of LIBOR + 12% and large "First Facility Fee" and "Exit Fee" still at 5%. Little wonder that the Debtors were able to attract further (and considerably larger) interest from DIP financing providers.

Changes are highlighted in a blackline attached at Docket No. 40, with the other most significant amendments relating to (i) the elimination of a "Sale Fee" further to which the Gordon Brothers/Hilco Global team would have gotten 45% of whatever was leftover after senior creditors are made whole and (ii) changes to "consignor" fees, ie fees received by the DIP lenders for money advanced to buy further inventory to throw into the store closing sales (beware consumers). Also out of the picture are Paul Hastings, as advisors to the replaced DIP lenders, with Jones Day stepping in as advisors to the new DIP lenders.

In a press release announcing the change in DIP financing providers, the Debtors announced, "that the Company has secured approximately $218 million in new financing from Brigade Capital Management, LP ('Brigade Capital') and B. Riley Financial, Inc. (NASDAQ:RILY) ('B. Riley Financial') to facilitate a going concern sale process. This new agreement, which materialized earlier in the day, replaces the previously announced $75 million agreement with affiliates of Hilco Global and the Gordon Brothers Group and will refinance all of Barneys New York's existing secured indebtedness. The Court granted Barneys New York interim approval to immediately access $75 million of the $218 million in new financing from Brigade Capital and B. Riley Financial, which, combined with operating cash flow, will help Barneys New York to meet its go-forward financial commitments and continue operations."

The current motion [Docket No. 89] notes: "“Prior to and following the filing of the DIP Motion, the Debtors engaged in continuous negotiations with Brigade Capital Management and BRF Finance Co., LLC (collectively, the ‘DIP Lenders’) with respect to an alternative $217 million DIP financing proposal that would provide $75 million of funding on an interim basis (i.e., as of August 7, 2019), and the remaining $142 million following entry of a second interim order (i.e., as of August 15, 2019), including amounts necessary to satisfy the Prepetition Secured Obligations in full in cash, all subject to a final hearing (the ‘Brigade DIP Facility’). Relative to the Hilco DIP Facility, the Brigade DIP Facility contains more favorable economic and non-economic terms, including a full takeout of the Prepetition Secured Obligations — subject only to the expiration of the challenge period with respect to certain contingent indemnification obligations—$5 million of incremental operating capital, a month of additional time to run the marketing process, and significantly relaxed operational covenants. The Debtors continued to negotiate with Hilco and other parties in interest after receiving Brigade’s revised proposal to ensure that the Brigade DIP Facility was in fact the highest or otherwise best available alternative under the circumstances. Ultimately, the Debtors and their advisors determined that the Brigade DIP Facility provided the best available terms for the reasons articulated by Mr. Burian at the First Day Hearing.”

Comparison of the Terms of DIP Facility:

Terms

Hilco DIP Facility

Brigade DIP Facility

Facility Size / Relative Priorities

$75 million, junior to Prepetition Secured Obligations.

 All funds on an interim basis, subject to Final Hearing.

$217 million financing, priming solely to the extent of the Prepetition Secured Parties’ contingent indemnification obligations (i.e., the Prepetition Indemnity Obligations).

Funded in two steps: (i) $75 million, junior to the Prepetition Secured Obligations, after First Day Hearing, and (ii) the remaining amounts funded after Second Interim Hearing. All subject to Final Hearing.

Fees

Facility Fee: 5% of Commitments (i.e., $75 million);

Weekly Fee: $100,000 for each week after August 30, 2019;

Exit Fee: 5% of any outstanding Term Loans and undrawn Commitments (i.e., $75 million);

Sale Fee: Any Sale Proceeds remaining after satisfaction of the Prepetition Obligations, DIP Obligations, and administrative expenses and priority claims to be shared as follows: 45% to the DIP Lenders and 55% to the Debtors.

Facility Fee: 5% of Commitments (i.e. $75 million);

Weekly Fee: $100,000 for each week the Tranche B or Tranche C Loans remain outstanding;

Exit Fee: 5% of any outstanding Term Loans from initial funding (i.e., $75 million) on Tranche A Loans (not the full DIP Facility)

Sale Fee: Same, except 37.5% to the DIP Lenders and 62.5% to the Debtors

Interest Rate

LIBOR plus 12.0%, with LIBOR floor of 250 bps

Tranche A Loans: LIBOR plus 12.0%

 Tranche B Loans: Tranche B-1: LIBOR plus 7.0%; Tranche B-2: LIBOR plus 2.25%

 Tranche C Loans:

A rate per annum equal to the difference between the aggregate rates at which LCs cash collateralized with the the proceeds of the Tranche C Loans would accrue fees absent cash collateralization, and the rate at which such LCs would accrue fees while fully cash collateralized.

 From and after any drawing on any LCs that are cash collateralized with the proceeds of the Tranche C Loans, such Tranche C Loans as had been cash collateralizing such drawn LCs shall bear interest from the date that the relevant LCs were drawn until such Tranche C Loans are repaid, at 2.25%

Interest Periods Election

Permitted up to 2 Interest Periods to be outstanding at any time

If the Agent reasonably determines that the LIBOR Rate is unavailable, then the Term Loans bear interest, at a rate per annum equal to the Base Rate plus, in the case of the Tranche A Term Loans, 11.00% and in the case of the Tranche B Term Loans, 11.00% until the LIBOR Rate is available

Permitted up to 6 Interest Periods to be outstanding at any time

 If the Agent reasonably determines that the LIBOR Rate is unavailable, then the Term Loans bear interest, at a rate per annum equal to the Base Rate minus 1.00% plus  he spread otherwise applicable to such Term Loans until the LIBOR Rate is available

Consignment

Revenue share (at retail) of 1% – 5% depending on purchase discount received from vendor

Interest of 7% per annum on the outstanding consignment amount (at cost)

$100,000 per month work fee

 

Key Dates

  • Second Interim DIP Hearing: August 14, 2019
  • Objection Deadline: August 13, 2019
  • Final DIP Hearing: September 4, 2019

About the Debtors

According to the Debtors: "Barneys New York (Barneys) is a creative destination for modern luxury retail, entertainment, and dining. Barneys is renowned for being a place of discovery for some of the world's leading designers, and for creating the most discerning edit across women's and men's ready-to-wear, accessories, shoes, jewelry, cosmetics, fragrances, and home. Barneys' signature creativity and style comes to life through its innovative concepts and experiences, imaginative holiday campaigns, famed window displays, and exclusive activations. Barneys also operates its iconic restaurants, Freds at Barneys New York, serving an Italian-inspired and contemporary American menu within four of its flagship stores. For more information about Barneys New York, please visit Barneys.com, explore its editorial site The Window for an inside look, and subscribe to The Barneys Podcast.”

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