Nine West Holdings – Court Confirms Third Amended Joint Plan as Bitterly Contested Bankruptcy Nears Conclusion

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February 25, 2019 – Further to a scheduled hearing, the Court hearing the Nine West Holdings case confirmed [Docket No. 1308] the Debtors' Third Amended Joint Plan of Reorganization ending a lengthy and often acrimonious Chapter 11 that pitted the Debtors' equity holders Sycamore Partners Management and Kohlberg Kravis Roberts & Co (together, the "Equity Holders") against the Debtors' creditors. This fight was ultimately settled on February 8, 2019 when the Equity Holders agreed to a second increase of a payment that will be shared amongst creditor classes to $120mn (this time by $5mn, adding to an earlier $10mn concession). Creditors are also in line to share savings that will result from a cessation of hostilities; and the limiting of senior, administrative costs that would have been incurred had the Debtors' stakeholders (and their legions of lawyers) continued to wage war.
On April 6, 2018, Nine West Holdings (f/k/a Jones Group) and ten affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 18-10947. The Company, which designs, markets and wholesales apparel, footwear and accessories, initiated its Chapter 11 process having entered into a restructuring support agreement (the "RSA") with parties that held 78% of its secured term debt and over 89% of its unsecured term debt. 

On February 15, 2019, the Debtors filed a third Amended Chapter 11 Plan incorporating the global settlement announced on the record at the Court hearing held on February 8, 2019. The Debtors, the Official Committee of Unsecured Creditors (the “UCC”), the Secured Term Loan Lenders, the Unsecured Term Loan Lenders, the Equity Holders (ie Sycamore Partners Management and Kohlberg Kravis Roberts & Co or "KKR"), the 2019 Notes Trustee, the 2034 Notes Trustee, and the Ad Hoc Group of Unsecured Noteholders each agreed to support confirmation of the Third Amended Joint Plan.

The Third Amended Joint Plan states, “The modified recoveries for Classes 5A–5I are the result of additional settlements and compromises between the case parties and are further described and implemented in the Third Amended Plan. The enhanced recoveries for the 2019 Notes Claims, the 2034 Notes Claims, and the General Unsecured Claims against Nine West Holdings, Inc. under the Third Amended Plan are the result of the following modifications and agreements in comparison to the Second Amended Plan.”

 
  • Equity Holders Settlement: The Equity Holders have agreed to increase their cash contribution from $115 million to $120 million.
  • Distribution of the Equity Holders Settlement: The UTLs will receive $16.25 million of the Equity Holders Settlement Proceeds (versus 25% of the Distributable Equity Holders Settlement Proceeds under the Second Amended Plan) and holders of Class 5B, 5C, and 5D Claims will receive a pro rata distribution of $48.75 million from the Equity Holders Settlement (versus 75% of the Distributable Equity Holders Settlement Proceeds under the Second Amended Plan). The remaining $55 million of the Equity Holders Settlement Proceeds will vest in the Debtors, which may be used to pay the sources and uses under the Plan.
  • NWHI-Only Unsecured Creditor Cash Recoveries: In addition to their share of the Equity Holders Settlement Proceeds, the holders of Claims in Classes 5B, 5C, and 5D will also receive $29,400,000 in Cash from (a) the first $5,000,000 from the Professional Fee Savings, and (b) $24,400,000 from the Debtors.
  • Unsecured Term Loan Lender Cash Recoveries: In addition to their share of the Equity Holders Settlement Proceeds, the holders of Claims in Class 5A will also receive Cash in an amount equal to (a) the Administrative Expense Savings and (b) the Professional Fee Savings in excess of $5,000,000.
  • Equity of Reorganized Debtors: Under the Plan, the Unsecured Term Lenders were to receive 92.5% of the New Common Stock. Under the Amended Plan, the Unsecured Term Loan Lenders have agreed to provide an additional 2.5% (as compared to the Plan) of the New Common Stock to the non-Unsecured Term Loan Lender unsecured creditors of Nine West Holdings, Inc., whose claims are in Classes 5B, 5C, and 5D. Holders of claims in Classes 5B, 5C, and 5D will now receive their pro rata share of approximately 9.5% of the New Common Stock (subject to dilution by the New Warrants and Management Incentive Plan). The remaining approximately 0.5% of the New Common Stock will be distributed to holders of Claims in Classes 5E, 5F, 5G, 5H, 5I, and 5J.
  • New Warrants: The amount of New Common Stock available upon exercise of the New Warrants has been reduced from 25 percent to 20 percent (subject to dilution by the Management Incentive Plan). Terms of the New Warrants are otherwise unchanged.
  • Non-Released Parties Trust: The allocation of the Non-Released Party Trust Distributable Proceeds has been modified such that the first $2.5 million of Non-Released Party Trust Distributable Proceeds shall be distributed to holders of the 2034 Notes Claims, with Non-Released Party Trust Distributable Proceeds in excess of $2.5 million to be distributed on a pro rata basis to holders of Allowed 2034 Notes Claims (based on an allowed claims amount of $319,996,745), Allowed 2019 Notes Claims, and Allowed Class 5D General Unsecured Claims against NWHI. The Non-Released Party Trust Loan provided by the Reorganized Debtors pursuant to the Second Amended Plan has been eliminated in the Third Amended Plan. Instead, on the Effective Date, the Ad Hoc Group of Unsecured Noteholders will provide the approximately $7.7 million Non-Released Party Trust Loan to the Non-Released Party Trust.  The Third Amended Plan also provides that the Non-Released Party Trust Advisory Board will consist of four representatives selected by the Ad Hoc Group of Unsecured Noteholders and one selected by the UCC.
  • Elimination of GUC Cash-Out Option: The GUC Cash-Out Option in the Second Amended Plan has been eliminated, and all elections pursuant to the GUC Cash-Out Form are null and void, and of no further force or effect. Accordingly, holders of General Unsecured Claims in Classes 5D, 5E, 5F, 5G, 5H, and 5I will not be entitled to receive cash in exchange for their Non-Cash Distributions as set forth in the Second Amended Plan.
  • Non-Released Party Trust Cash-Out Option: The Third Amended Plan provides the Cash-Out Option to holders of Claims in Classes 5B, 5C, and 5D, other than members of the Ad Hoc Group of Unsecured Noteholders. Under the Cash-Out Option, holders of Claims in Classes 5B, 5C, and 5D (other than members of the Ad Hoc Group of Unsecured Noteholders) shall have the opportunity to irrevocably elect to receive either (1) their pro rata portion of cash equal to 1.78% of such holders’ Allowed Claim, or (2) their pro rata portion of Non-Released Party Trust Interests. The members of the Ad Hoc Group of Unsecured Noteholders will provide a commitment to fund the Cash-Out Option.
  • Elimination of NWHI Administrative Expense Settlement: Under the Second Amended Plan, the Debtors settled allocation issues with respect to professional and administrative expenses incurred in the chapter 11 cases pursuant to the NWHI Administrative Expense Settlement, which charged 35 percent of such expenses against the Equity Holders Settlement Proceeds available for distribution to holders of Claims in Classes 5A, 5B, 5C, and 5D. The NWHI Administrative Expense Settlement has been eliminated under the Third Amended Plan.
  • Payment of Ad Hoc Group of Noteholders’ Fees and Expenses: The Third Amended Plan now provides that the reasonable, actual, and documented fees and expenses incurred by the Ad Hoc Group of Unsecured Noteholders in the amount of $12.5 million will be payable as Restructuring Expenses, or pursuant to a substantial contribution application under section 503(b) of the Bankruptcy Code.
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan):
 
  • Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected amount of claims is $189,698 and projected recovery is 100%.
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected amount of claims is $812,852 and projected recovery is 100%. 
  • Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
  • Class 4 (“Secured Term Loan Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $432,798,741 and projected recovery is 100%.
  • Class 5A (“Unsecured Term Loan Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $305,099,461 and each holder of an Allowed Unsecured Term Loan Claim shall receive its Pro Rata share of: (i) 91.5%  of  the  New  Common  Stock,  subject  to  dilution  by the  Management Incentive Plan and the New Warrants; (ii)$16,250,000 in Cash from the Equity Holders Settlement Proceeds; (iii) $3,700,000 from the Debtors; (iv) Cash in an amount equal to the Administrative Expense Savings; and (v) Cash from the Professional Fee Savings in excess of $5,000,000.
  • Class 5B (“2034 Notes Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $255,997,396 and each holder of an Allowed General Unsecured Claim in Class 5B shall receive: (i) its Pro Rata share (based on the aggregate amount of Allowed Claims in Classes 5B, 5C, and 5D) of: (1) $48,750,000 in Cash from the Equity Holders Settlement Proceeds; (2) the first $5,000,000 in Cash from the Professional Fee Savings; (3) $24,400,000 in Cash from the Debtors; (4) 7.981% of the New Common Stock, subject to dilution by the Management Incentive Plan and the New Warrants; and (5) the New Warrants; and (ii) Either: (1) its Pro Rata share (based on (A) an Allowed 2034 Notes Claim in the amount of $319,996,745, (B) the Allowed Claims in Class 5C, and (C) the Allowed Claims in Class 5D) of the Class II Non-Released Party Trust Interests; or (2) solely to the extent that such holder is not a member of the Ad Hoc Group of Unsecured Noteholders, the Cash-Out Option to the extent such holder timely elects to receive the Cash-Out Option.
  • Class 5C (“2019 Notes Claims”) is impaired and entitled to vote on the Plan. The projected amount of claims is $476,002,016 and each holder of an Allowed General Unsecured Claim in Class 5D shall receive: (i) its Pro Rata share (based on the aggregate amount of Allowed Claims in Classes 5B, 5C, and 5D) of: (1) $48,750,000 in Cash from the Equity Holders Settlement Proceeds; (2) the first $5,000,000 in Cash from the Professional Fee Savings; (3) $24,400,000 in Cash from the Debtors; (4) 7.981% of the New Common Stock, subject to dilution by the Management Incentive Plan and the New Warrants; and (5) the New Warrants; and (ii) Either: (1) its Pro Rata share (based on (A) an Allowed 2034 Notes Claim in the amount of $319,996,745, (B) the Allowed Claims in Class 5C, and (C) the Allowed Claims in Class 5D) of the Class II Non-Released Party Trust Interests; or (2) solely to the extent that such holder is not a member of the Ad Hoc Group of Unsecured Noteholders, the Cash-Out Option to the extent such holder timely elects to receive the Cash-Out Option.
  • Class 5D (“General Unsecured Claims against NWHI”) is impaired and entitled to vote on the Plan. The projected amount of claims is $157,897,543 and each holder of an Allowed General Unsecured Claim in Class 5D shall receive: (i) its Pro Rata share (based on the aggregate amount of Allowed Claims in Classes 5B, 5C, and 5D) of: (1) $48,750,000 in Cash from the Equity Holders Settlement Proceeds; (2) the first $5,000,000 in Cash from the Professional Fee Savings; (3) $24,400,000 in Cash from the Debtors; (4) 7.981% of the New Common Stock, subject to dilution by the Management Incentive Plan and the New Warrants; and (5) the New Warrants; and (ii) Either: (1) its Pro Rata share (based on (A) an Allowed 2034 Notes Claim in the amount of $319,996,745, (B) the Allowed Claims in Class 5C, and (C) the Allowed Claims in Class 5D) of the Class II Non-Released Party Trust Interests; or (2) solely to the extent that such holder is not a member of the Ad Hoc Group of Unsecured Noteholders, the Cash-Out Option to the extent such holder timely elects to receive the Cash-Out Option.
  • Class 5E (“General Unsecured Claims against Nine West Development LLC”) is impaired and entitled to vote on the Plan. The projected amount of claims is $92,843 and each holder of an Allowed General Unsecured Claim in Class 5E shall receive its Pro Rata share of 0.039% of the New Common Stock from the GUC Subsidiary Equity Pool, subject to dilution by the Management Incentive Plan and the New Warrants.
  • Class 5F (“General Unsecured Claims against Nine West Management Service LLC”) is impaired and entitled to vote on the Plan. The projected amount of claims is $2,705,054 and each holder of an Allowed General Unsecured Claim in Class 5F shall receive its Pro Rata share of 0.147% of the New Common Stock from the GUC Subsidiary Equity Pool, subject to dilution by the Management Incentive Plan and the New Warrants.
  • Class 5G (“General Unsecured Claims against Nine West Distribution LLC”) is impaired and entitled to vote on the Plan. The projected amount of claims is $76,133 and projected recovery is 6.9%. Each holder of an Allowed General Unsecured Claim in Class 5G shall receive its Pro Rata share of 0.002% of the New Common Stock from the GUC Subsidiary Equity Pool, subject to dilution by the Management Incentive Plan and the New Warrants.
  • Class 5H (“General Unsecured Claims against One Jeanswear Group Inc.”) is impaired and entitled to vote on the Plan. The projected amount of claims is $2,386,675 and each holder of an Allowed General Unsecured Claim in Class 5H shall receive its Pro Rata share of 0.221% of the New Common Stock from the GUC Subsidiary Equity Pool, subject to dilution by the Management Incentive Plan and the New Warrants.
  • Class 5I (“General Unsecured Claims against Kasper Group LLC”) is impaired and entitled to vote on the Plan. The projected amount of claims is $1,994,648 and each holder of an Allowed General Unsecured Claim in Class 5I shall receive its Pro Rata share of 0.110% of the New Common Stock from the GUC Subsidiary Equity Pool, subject to dilution by the Management Incentive Plan and the New Warrants.
  • Class 5J (“General Unsecured Claims against Non-Operating Debtors”) is impaired, deemed to reject and not entitled to vote on the Plan. The projected amount of claims is $76,352 and projected recovery is 0%. 
  • Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to have accepted/rejected and not entitled to vote on the Plan. On the Effective Date, all Intercompany Claims shall be, as determined by the Debtors with the reasonable consent of the Requisite Unsecured Lenders, either:(i)  Reinstated, (ii) converted to equity, or (iii) cancelled and shall receive no distribution on account of such Claims and may be compromised, extinguished, or settled after the Effective Date.
  • Class 7 (“Interests in Holdings”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated recovery is 0%.
  • Class 8 ("Intercompany Interests") is unimpaired/impaired, deemed to have accepted/rejected and not entitled to vote on the Plan. On the Effective Date, Intercompany Interests shall be, as determined by the Debtors with the reasonable consent of the Requisite Unsecured Lenders, either: (i) Reinstated, or (ii) discharged, cancelled, released, and extinguished as of the Effective Date, and will be of no further force or effect, and holders of Intercompany Interests will not receive any distribution on account of such Intercompany Interests.
  • Class 9 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated recovery is 0%.

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