Charming Charlie Holdings Inc. – In Groundhog Day Bankruptcy, Fashion Retailer Files Chapter 11 only 14 Months after Emerging from Earlier Chapter 11 Hole, Cites Same Issues

Register, or to view the article

July 11, 2019 − Charming Charlie Holdings Inc. and six affiliated Debtors (“Charming Charlie” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-11534. The Debtors, a leading specialty retailer focused on colorful fashion jewelry, handbags, apparel, gifts, and beauty products, are represented by Domenic E. Pacitti of Klehr Harrison Harvey Branzburg LLP. Further board-authorized engagements include (i) Paul Hastings LLP as general bankruptcy counsel, (ii) Clear Thinking Group LLC (“CTG”) as restructuring advisor, (iii) Hilco Merchant Resources, LLC (“Hilco”) and SB360 Capital Partners (“SB360”) as advisors on store closings and (iv) Prime Clerk as claims agent.

The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $0 and $50k; and estimated liabilities between $50.0mn and $100.0mn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) Guggenheim Securities, LLC ($2.1mn professional services claim), (ii) Tanya Creations LLC ($1.1mn trade claim) and (iii) FTI Consulting, Inc ($850k professional services claim).

Objectives of the Chapter 11 Filings

The Debtors are liquidating and all stores will be closed. The Debtors state: "After an extensive review of their businesses and strategic alternatives, the Debtors made the difficult decision to proceed with liquidation, closing all stores and winding down their business. Accordingly, the Debtors and their advisors decided to engage the Consultant to assist in these efforts. Not only is the Consultant comprised of industry leaders, but Hilco has extensive experience with Charming Charlie because Hilco worked with the Prior Debtors on their store closing sales during the Prior Cases."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Bellon Declaration”), Alvaro Bellon, the Debtors’ Senior Vice President and Chief Financial Officer, detailed the events leading to the Debtors’ Chapter 11 filing. The Bellon Declaration state: “The Debtors commence these chapter 11 cases approximately 14 months after completing a prior restructuring and emerging from chapter 11 with a simplified capital structure, a reduced brick-and-mortar footprint, and a revamped “Back to Basics” business plan. Unfortunately, these efforts have not resulted in long-term sustainability. The Debtors once again face issues similar to those that precipitated filing the Prior Cases: unsustainable operating expenses, including onerous leases, and constrained liquidity under our loan documents. This lack of liquidity has resulted in reduced inventory, further exacerbating the Debtors’ lack of availability under their asset based loan. These factors combined with the continued decline of the brick-and-mortar retail industry have made it increasingly difficult for the Debtors to support their cost and capital structure.”

Bellon continues: "Multiple macroeconomic and microeconomic factors lead to the Debtors’ commencing these chapter 11 cases. The macroeconomic factors, include inclement weather disrupting the shopping experience in the first quarter of 2019, the implementation of the new tax laws that reduced consumer spending, and the general downturn in the retail industry, which has led to a decrease in consumer traffic and related sales and the marked shift away from brick-and-mortar retail to online channels. Microeconomic factors also contributed, including, for example, constricted access to credit, excess, unprofitable inventory, and unfavorable trade and real estate lease terms. Together, these factors have strained the Debtors’ liquidity. Indeed, as of the Petition Date, the Debtors have $6,000 in cash on hand."

Prepetition Capital Structure

As of the Petition Date, the Debtors’ capital structure consisted of outstanding funded-debt obligations in the aggregate amount of approximately $81.8mn, including the Prepetition ABL Facility, the Prepetition Term Loan Facility, and the Prepetition Vendor Facility. The following table summarizes the Debtors’ outstanding funded-debt obligations as of the Petition Date:

Funded Debt

Maturity

Interest Rates

Total Amount Outstanding

Prepetition ABL Facility

February 2022

Libor + 6.5% Prime Rate + 5.5%

$9.5mn

Prepetition Term Loan Facility

April 2023

Term A Loans: Libor + 10.00%

Term B Loans: Libor + 1.00% + PIK interest of 9.00%

Term A Loans: Base Rate + 9.00%

Term B Loans: Base Rate + 0.00% + PIK interest of 9.00%

$62.3mn (including PIK interest)

Prepetition Vendor Facility

May 2020

20.0%

$10.0mn

Total

$81.8mn

Significant Prepetition Equity Positions

  • THL Credit (“THL”): 52.1%
  • Apollo Global Management: 17.6%
  • Sierra income Corporation: 11.6%
  • Cion Investment  Corporation: 10.0%
  • Russell Investment Company: 3.2%
  • Stichting Blue Sky: 2.6%
  • Congruent Credit Opportunities: 1.7%

About the Debtors

Charming Charlie was founded by Charles Chanaratsopon in 2004. In less than a decade, Charming Charlie grew into a leading specialty retailer focused on colorful fashion jewelry, handbags, apparel, gifts, and beauty products. By the fall of 2017, Charming Charlie had over 390 locations spread across the United States, Canada, the Middle East, and the Philippines. 

Charming Charlie has both a national, operating approximately 261 locations across 38 states nationwide. Retail stores are located in lifestyle centers, shopping malls, power centers, street level shops, and outlets. The stores are located in approximately 125 lifestyle centers, 80 shopping malls, 50 power centers, 2 street stores, and 4 outlets. Currently, Texas, Florida, and California host the most brick-and-mortar locations with approximately 75 locations in total. 

In addition to its physical footprint, Charming Charlie maintains a robust online presence (www.charmingcharlie.com). Charming Charlie has invested significant time and resources to expand and improve its website to compete with experiences provided by certain of its competitors.

The Debtors employ approximately 3,342 employees, including approximately 856 full-time employees and approximately 2,486 part-time employees.

Read more Bankruptcy News