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February 25, 2019 – The Court hearing the Payless Holdings case issued an order authorizing the Debtors to access $21mn in interim debtor-in-possession (“DIP”) financing; $17mn of which is available immediately with a second tranche of $4mn to be available from March 1, 2019 [Docket No. 265].
As previously cited from the DIP motion, “The proposed DIP Facility and access to liquidity thereunder is critical towards preserving and maximizing the asset value of the Debtors’ estates. In particular, the Debtors seek immediate access to the DIP Facility in order to purchase the Augmentation Inventory and further maximize proceeds being generated during the Store Closing Sales. While the DIP Facility and Augmentation Inventory are being used to directly fund the operations of and benefit the Debtors in the context of the ongoing Store Closing Sales, the purchases will also help to support the Debtors’ key suppliers, who the Debtors believe provide goods and inventory to the Debtors on advantageous terms and may be critical to the support of the Debtors’ affiliated international retail operations in the context of any reorganization scenario.
Without immediate access to the DIP Facility, the Debtors will suffer significant impairment to their business operations and as a result, may be unable to preserve the value inherent in potential reorganization scenarios contemplated by the Debtors and their affiliates at this time. Further, the Debtors will benefit from the message the funding will provide to their key stakeholders that operations (including foreign operations conducted by non-Debtors) are and will continue to be adequately funded throughout these chapter 11 cases. The ability of the Debtors to maintain business relationships with their vendors, suppliers and customers requires the availability of working capital from the DIP Facility, the absence of which would immediately and irreparably harm the Debtors, their estates, and parties-in-interest.”
Key Terms of DIP Facility:
- Borrower: Payless Inc.
- Guarantors: (i) Payless Holdings LLC (“Holdings”) and each subsidiary of Holdings (other than the Borrower and any Canadian subsidiary of Holdings) that is a debtor in the Debtors’ chapter 11 cases and (ii) the Delayed Guarantors.
- DIP Secured Parties: Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent for the DIP Lenders (the “DIP Agent”). Axar Capital Management LP, Citibank, Invesco, Benefit Street and Octagon and/or one or more of their respective affiliates, related/advised funds and/or managed accounts and/or designees (collectively, the “DIP Lenders”).
- Maturity: All DIP Obligations will be due and payable in full in cash on the earliest of: (i) September 30, 2019; (ii) the date of consummation of one or more sales that, in the aggregate, constitutes a sale of all or substantially all of the Non-GOB Collateral; (iii) if the Final DIP Order has not been entered by the Court on or before the applicable Milestone, the date of the applicable Milestone; (iv) the date of acceleration of the DIP Loans and the termination of the DIP Lenders’ commitments under the DIP Facility pursuant to the terms of the DIP Credit Agreement; (v) the date the Court orders the conversion of the chapter 11 case of any of the Debtors to a chapter 7 liquidation or the dismissal of the chapter 11 case of any Debtor; (vi) the filing by the Debtors of a proposed chapter 11 plan other than the Acceptable Plan; and (vii) the effective date.
- Commitment: A debtor-in-possession delayed draw term loan facility (the “DIP Facility”, and the term loans thereunder, “DIP Loans”) in an aggregate principal amount not to exceed $25 million (net of the original issue discount) (the aggregate principal amount of the DIP Lenders’ commitments under the DIP Facility, the “Total DIP Commitments”). DIP Loans shall be made in (i) the Initial DIP Draw on the Closing Date, in an aggregate principal amount equal to $17 million (net of the original issue discount), (ii) the Interim DIP Draw in an aggregate principal amount of $4 million (net of the original issue discount) on or after March 1, 2019, and (iii) the Final DIP Draw in an aggregate principal amount of $4 million (net of the original issue discount) on or after the date of entry of the Final DIP Order (as defined below) in an aggregate amount equal to the remaining principal balance of the Total DIP Commitments. The DIP Loans shall be made with an original issue discount of 1.50% of the aggregate principal amount of such DIP Loans.
- Interest Rates:
- Interest Rate: LIBOR Rate + 800 bps.
- Default Rate: Upon the occurrence and during the continuation of an Event of Default, interest on the DIP Loans shall accrue at the Interest Rate plus an additional 200 basis points per annum (the “Default Interest”), which shall be payable in cash on demand.
- Original Issue Discount: The DIP Loans shall be made with an original issue discount of 1.50% of the aggregate principal amount of such DIP Loans.
The Court scheduled a hearing to consider the final DIP order for March 14, 2019.
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