Barneys New York, Inc. – Iconic New York Retailer Files Chapter 11, Lines up DIP Financing to Facilitate Going Concern Sale, Looks to Lease Rejections to Save $26mn Annually

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August 6, 2019 − Barneys New York, Inc. and 4 affiliated Debtors (“Barneys” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 19-36300. The Debtors, a chain of luxury department stores founded and headquartered in New York City and majority-owned by private equity fund Perry Capital, are represented by Joshua A. Sussberg of Kirkland & Ellis. Further board-authorized engagements include (i) Houlihan Lokey as investment banker, (ii) M-III Partners, L.P. as restructuring/financial advisor and (iii) Stretto as claims agent. 

The Debtors’ lead petition notes between 5,000 and 10,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Jenel Management ($6.0mn lease claim), (ii) The Row LLC ($3.7mn trade debt) and (iii) Celine Inc. ($2.7mn trade debt). The Debtors certainly enter Chapter 11 well accessorized with unsecured creditors with Yves Saint Laurent, Balenciaga, Givenchy, Gucci, Prada, Chloe, Shiseido, Chanel and Manolo Blahnik all listed as having trade debts in excess of $800k. It is not, however, the trade creditors (with the exception of Prada with whom the Debtors have had a famously stormy relationship) who will be sweating it; the Debtors will clearly be interested in ongoing relationships with suppliers if they hope to maximize any going concern asset sale (their "top priority is optimizing asset value recovery while maintaining brand value and goodwill;" NB: Many of these trade creditors will get some immediate relief if the Court grants the Debtors' motion as to foreign and critical vendors [Docket No. 13]). 

It is the Debtors' landlords, two of whom find themselves amongst the top five unsecured creditors (four in top 30) and all of whom find themselves in the Debtors' bankruptcy crosshairs ("Barneys New York intends to use the court-supervised process to review store leases to best optimize the Company's operations") that have every reason to be nervous. In one of their first motions, the Debtors have asked the Court to allow them to reject 15 of their 28 leases [Docket No. 12], including those in respect of their "flagship" stores in Chicago, Seattle and Las Vegas. In their motion, the "Debtors estimate that rejecting the Leases will save approximately $2.2 million per month in rent and associated costs and have determined in their business judgment that such costs constitute a wasteful drain of estate assets." All 15 properties are listed in a schedule attached to the motion.

The rejection of leases in Chapter 11 (or the threat of doing so) appears to be a fashionable way for upsacle retailers to relook their balance sheets, Diesel USA having emerged from bankruptcy in April 2019 off the back of lease rejection efforts.

In a press release announcing the filing, the Debtors advised that it “has secured $75 million in new capital to facilitate a going concern sale process. In connection with the sale process, Barneys New York has voluntarily filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Barneys New York intends to use the court-supervised process to review store leases to best optimize the Company's operations and consider all value enhancing transactions. 

Barneys New York has secured $75 million in new capital from affiliates of Hilco Global and the Gordon Brothers Group, which, combined with operating cash flow, will help Barneys New York to meet its go- forward financial commitments. The debtor-in-possession lenders, together with their separate retail operating units which have been engaged to provide certain inventory related services, have broad and deep expertise in all retail sectors, offering a wide range of analytical, advisory, asset monetization and capital investment services backed by their own capital. Their top priority is optimizing asset value recovery while maintaining brand value and goodwill.”

Store Closings and Impact on Current Business Operations

The Debtors' press release provides the following detail on store closings and ongoing business operations:

  • The Debtors will close its physical store locations in Chicago, Las Vegas and Seattle, in addition to five smaller concept stores and seven Barneys Warehouse locations.
  • The Debtors will continue to serve customers in five flagship locations: Madison Avenue, Downtown NYC, Beverly Hills, San Francisco and Copley Place in Boston, as well as two Barneys Warehouse locations, including Woodbury Common and Livermore. In addition, Barneys.com and BarneysWarehouse.com will continue serving our customers without disruption.
  • The Debtors expect to pay trade vendors, manufacturing partners and suppliers in full for goods and services provided on or after the filing date.

Key Equity Holders

  • Funds affiliated with Perry Capital LLC: 72% 
  • Funds affiliated with Yucaipa Companies: 20%
  • Istithmar Bentley Cayman Ltd.: 8%

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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