David’s Bridal – Emerges from Whirlwind Chapter 11 with $450mn Debt Reduction Gift from New Owners

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January 18, 2019 – The Debtors notified the Court hearing the David’s Bridal case that they had emerged from their Chapter 11 bankruptcy effective January 18, 2019 [Docket No. 290]. The Court had previously blessed the adequacy of the Debtors’ Disclosure Statement and confirmed the Debtors’ Joint Prepackaged Chapter 11 Plan on January 4, 2019 [Docket No. 248]. As their last act in a whirlwind 9-week bankruptcy, the Debtors also filed an amendment to their Plan Supplement which attached final forms of key corporate and financing documents [Docket No. 289].

In a press release announcing the emergence from bankruptcy, Scott Key, the Company’s Chief Executive Officer commented, “I am excited to announce that we have successfully emerged from Chapter 11 bankruptcy on an accelerated timeline thanks to the tireless efforts of our team and our new owners’ confidence in the future of our company.” As described below, those new owners may not have come to the bankruptcy altar completely willingly; although they undoubtedly now wish the newly emergeds well, having provided them with a $450mn dowry of sorts via an exchange of debt for equity.

The $450 million of debt reduction comes at the expense of two impaired classes that nonetheless voted overwhelmingly “I do” in support of the Plan. Particularly hard hit were the holders of the Debtors’ $270 million senior unsecured notes due October 2020; who will see all of that $270mn of debt exchanged for 8.75% of the emerged Debtors’ new common stock and warrants (the latter presumably suitable for confetti). According to the Debtors’ Disclosure Statement, that translates into a 4.4% recovery based on a $436mn valuation of the Debtors’ new equity. 

 
Holders of the Debtors’ senior bank debt ($481.2mn as at the petition date) are in line for a 70.8% recovery based on that same new equity valuation and their receipt of 76.25% of the new common stock. In addition to equity, holders of senior debt claims will take their pro rata share in the Debtors’ new $300mn senior facility; the net result for the Debtors is the extinguishment of $181.2mn of senior bank debt.
 
Voting results:
 
On December 28, 2019, the claims agent notified the Court of the results of Plan voting [Docket No. 247] which were as follows:
 
  • Class 4 (“Prepetition Term Loan Claims,” ie the Debtors senior lenders) – 117 claims holders, representing $463,416,557.61 in amount and 100% in number, accepted the Plan. 
  • Class 5 (“Unsecured Notes Claims,” ie the holders of the Debtors’ unsecured 2020 notes) – 59 claims holders, representing $236,343,000 (or 99.16% %) in amount and 96.72% in number, accepted the Plan. 2 claims holders, representing $2,000,000 (or 0.84%) in amount and 3.28% in number, rejected the Plan. 
Background

David’s Bridal, an international bridal retailer and the largest U.S. destination for bridal gowns, wedding-related apparel, social occasion apparel and related accessories and services, filed for bankruptcy on November 19, 2018 noting between 50,000 and 100,000 creditors; estimated assets between $100 million and $500 million; and estimated liabilities between $500 million and $1 billion. 

In a declaration in support of the Chapter 11 filing (the “Hilson Declaration”) [Docket No. 9], Joan Hilson, David Bridal’s Executive Vice President and Chief Financial and Operating Officer, outlined the events leading to the Company’s Chapter 11 filing. 

The Hilson Declaration noted, “Despite the significant headwinds facing the brick-and-mortar retail industry, over the past several years, the Debtors have experienced steady financial performance and only modest loss of market share. The vast majority of David’s Bridal stores generate positive EBITDA, and the Debtors have historically generated stable operating cash flows. The most significant factor leading to the commencement of these chapter 11 cases is the amount of debt on the Debtors’ balance sheet, most of which will mature with the next 12 months.”

The Amendment to the Plan Supplement attached the following final form documents:

  • Exhibit 1: Exit ABL Facility Credit Agreement
  • Exhibit 2: Priority Exit Facility Credit Agreement
  • Exhibit 3: Takeback Term Loan Credit Agreement
  • Exhibit 4: Amended Organizational Documents
  • Exhibit 5: New Stockholders’ Agreement
  • Exhibit 6: Warrant Agreement
  • Exhibit 8: Information Required to be Disclosed Under 1129(a)(5)

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