Diesel USA – Court Confirms First Amended Chapter 11 Plan

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April 12, 2019 – The Court hearing the Diesel USA cases confirmed the Debtors' First Amended Joint Chapter 11 Plan of Reorganization and Disclosure Statement [Docket No. 116].

On March 5, 2019, Diesel USA filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10432. In its Petition, DIESEL USA Inc., which manufactures and retails jeans, clothing, and accessories for children, men, and women, noted between 200 and 1,000 creditors; estimated assets between $50mn and $100mn; and estimated liabilities between $10mn and $50mn. 

Plan Overview

In a declaration in support of the Chapter 11 filing (the “Samson Declaration”), Mark G. Samson, Diesel USA's Chief Restructuring Officer, outlined the Company's Chapter 11 objectives and new strategic path. The Samson Declaration states, "The new management team has formulated a new strategic path over the next 3 years (the ‘Reorganization Business Plan’) to restore the Diesel brand in the United States, return the Debtor to its pre-recession profitability, ensure its ability to continue operating in the United States, and preserve hundreds of jobs in addition to creating new ones through opening new stores. Specifically, the Reorganization Business Plan entails closing certain underperforming and costly stores with significant terms remaining on their leases (and allowing other leases to expire in the near term by their terms).

The Debtor commenced this chapter 11 case to obtain relief from its burdensome unexpired leases and executory contracts in order to revive its brick-and-mortar retail operations, which will allow it the opportunity to implement the Reorganization Business Plan. The Debtor is currently analyzing its executory contracts and unexpired leases to determine which will be rejected through this Chapter 11 Case, which will be accomplished through the chapter 11 plan of reorganization that was filed on the Petition Date (the ‘Plan’). Absent the ability to utilize the chapter 11 process to obtain such relief, the Debtor’s ability to continue operating would be severely threatened and it would be unable to implement the Reorganization Business Plan, which is crucial to its ability to continue operating as a going-concern."

The Debtor's Memorandum of Law, in stressing that none of the classes are impaired, added: "The Debtor believes there is no specific legal requirement that the Debtor obtain approval of a formal disclosure statement because no Class of Claims or Interests is Impaired under the Plan and, thus, votes on the Plan are not being solicited. Nevertheless, the Debtor believes the Disclosure Statement is a valuable informational tool and, to promote transparency, prepared and filed the Disclosure Statement that will provide the Debtor’s stakeholders with a better understanding of this Chapter 11 Case and the Plan.”

The Disclosure Statement added, "All ordinary course trade creditors of the Debtor will be Unimpaired and have their Allowed General Unsecured Claims either Reinstated or paid in full in cash with interest. In addition, Interests in the Debtor will be reinstated to preserve the Debtor’s existing corporate structure.

Certain executory contracts and unexpired leases will be rejected through the Plan pursuant to section 365 of the Bankruptcy Code. The counterparties for the rejected executory contracts and unexpired leases will also be unimpaired as their Allowed Rejection Damages Claims will be paid in full in cash in accordance with the relevant provisions of the Bankruptcy Code plus interest.

Except to the extent specifically rejected or modified through this Chapter 11 Case or the Plan, all executory contracts and unexpired leases will be assumed and all employee benefits, customer concessions, insurance policies, privacy policies, and other ongoing obligations of the Debtor will be honored after the Effective Date.

The Debtor will fund distributions under the Plan with currently available cash on hand as of the Plan’s Effective Date."

Summary of Classes, Claims, Voting Rights and Expected Recoveries:

  • Class 1 (“Other Priority Claims”) was unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%. 
  • Class 2 (“Secured Claims”) was unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
  • Class 3 (“General Unsecured Claims”) was unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
  • Class 4 (“Rejection Damages Claim”) was unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
  • Class 5 (“Interests”) was unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.

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