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August 7, 2019 – The Court hearing the Barneys New York cases issued an order authorizing the Debtors to (i) access $75.0mn in debtor-in-possession (“DIP”) financing to be provided by Gordon Brothers and Hilco Global and (ii) use cash collateral [Docket No. 49]. The DIP financing allows the Debtors to market themselves and aim for a going concern sale (the Debtors’ secured lenders had proposed a $10.0mn financing "that would liquidate the business effective immediately"), but the junior DIP debt does not come cheap: Interest at LIBOR + 12% and some hefty fees (detailed below), including a sale fee which would net Gordon Brothers/Hilco 45% of whatever is leftover after senior creditors are made whole.
$50.0mn of the DIP financing will be used to roll-up prepetition ABL debt ($121.3mn outstanding as at the Petition date) and a not inconsiderable amount will be used to cover DIP financing related fees.
The Debtors' DIP financing motion [Docket No. 20] stated, “The Debtors commenced these chapter 11 cases to raise incremental liquidity, optimize operations, and continue pursuing a value-maximizing transaction. To fund that process and their businesses, the Debtors, with the assistance of their advisors, undertook a robust, transparent, and competitive process to facilitate a new money investment—without which the company likely would face imminent and value-destructive liquidation—engaging twenty-five strategic and financial investors, twenty-four of which entered into nondisclosure agreements and accessed confidential information, over a period of more than three weeks. Those efforts culminated with two junior financing proposals for $75 million from third parties that support a 60-day process to market the Debtors’ business, including their intellectual property, as a going concern. The Debtors’ secured lenders, on the other hand, proposed a $10 million financing that would liquidate the business effective immediately.
The Debtors ultimately selected Hilco Global and Gordon Brothers—the parties behind one of the $75 million financing proposals—as the highest and best available source of funding. Hilco Global and Gordon Brothers also agreed to backstop certain consignment arrangements and oversee the sale closure process. The terms of such financing arrangements have been negotiated at arms’ length and in good faith, including vis-a-vis the Debtors’ secured lenders who consent to the use of their collateral. Certain terms are subject to and effective only upon entry of a final order, thus affording all parties adequate notice and opportunity to assess the proposed financing. Competition to provide the DIP loans is ongoing and the Debtors will continue to work to maximize value for the benefit of all parties in interest. What this process illustrates is that there is significant interest in Barneys. Approval of the relief requested herein is a critical step for the Debtors to maximize the value of that interest in the next 60 days.”
Key Terms of the DIP Financing
- Borrowers: Debtor Barney’s, Inc.
- Guarantors: Remaining Debtors.
- DIP Lenders: Gordon Brothers and Hilco Global, with Retail Funding (BNY), LLC as administrative agent.
- Term: The earliest to occur of (i) March 31, 2020, (ii) the date that is 30 days following the date of entry of the Interim Order if the Final Order has not been entered by the Bankruptcy Court on or prior to such date, (iii) the consummation of a sale of all or substantially all of the Loan Parties' assets; (iv) the substantial consummation of a plan of reorganization filed in the Chapter 11 Cases that is confirmed pursuant to an order of the Bankruptcy Court, or (v) the date on which the Term Loans are accelerated pursuant to Section 16.
- Commitments: The DIP Facility commitments total $75 million, $75 million of which are available on an interim basis.
- Interest Rate: Loans will bear interest at the rate of LIBOR +12%
- Default Rate: So long as an Event of Default shall have occurred and be continuing, and at the election of the Agent, the interest rate applicable to the Obligations shall be increased by two percentage points (2.00%) per annum above the rate of interest otherwise applicable hereunder (the "Default Rate"), and all outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations. Interest at the Default Rate shall accrue from the date of such Event of Default until such Event of Default is cured or waived and shall be payable upon demand.
- First Facility Fee: On or prior to the date of funding of the Initial Loan, the Borrower shall pay to the Agent an initial facility fee (the "Initial Facility Fee") equal to 5% of the principal amount of the Initial Loan, which shall be fully earned upon the entry of the Interim Order and non-refundable when paid.
- Additional Facility Fee: On or prior to the date of funding of the Additional Loan, the Borrower shall pay to the Agent an additional facility fee (the "Additional Facility Fee"; the Initial Facility Fee, together with the Additional Facility Fee, the “Facility Fee”) equal to 5% of the principal amount of the Additional Loan, which shall be fully earned upon the entry of the Interim Order and non-refundable when paid.
- Exit Fee: On the Maturity Date, the Borrower shall pay to the Agent an exit fee (the "Exit Fee") equal to 5% of any outstanding Term Loans and undrawn Commitments, which shall be fully earned upon the entry of the Interim Order and non-refundable when paid.
- Sale Fee: Subject to entry of the Final Order, any Sale Proceeds remaining after satisfaction of the Prepetition Obligations, DIP Obligations, and administrative expenses shall be shared as follows: 45% to the DIP Lenders and 55% to the Debtors.
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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