Plus-Size Retailer FULLBEAUTY Announces Comprehensively Supported Restructuring, Expects to Shed $900mn in Debt (and Private Equity Sponsors) in Chapter 11 Resizing

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January 3, 2019 – Plus-size clothing retailer FULLBEAUTY Brands (“FULLBEAUTY” or the “Company”) announced that it had agreed a comprehensive restructuring support agreement (the “RSA”) with key stakeholders including (i) its current equity sponsors, Apax Partners (“Apax”) and Charlesbank Capital Partners (“Charlesbank,” and together with Apax, the “Sponsors”), (ii) holders of 100% of its FILO term loan claims, (iii) holders of over 99% of its first lien term loan claims (the “First Lien Lenders”) and (iv) holders of over 95% of its second lien term loan claims (the “Second Lien Lenders”). 

The Company is currently soliciting support of its Plan from creditors, a process it believes will be completed by January 24, 2018. Thereafter it intends file a Chapter 11 Petition with Southern District of New York. Although the Company has announced the strong support of key stakeholders, it is not yet clear what further classes of creditors (and what levels of support exists amongst those classes) the Company is soliciting. A microsite for the Company’s creditors has been set up by claims agent Prime Clerk at https://cases.primeclerk.com/fullbeauty.

According to a press release issued by the Company, the “restructuring transaction contemplated by the RSA will reduce FULLBEAUTY’s outstanding indebtedness by approximately $900 million, significantly strengthening the Company’s balance sheet and enhancing financial flexibility going forward. The transaction is expected to close in early 2019.”

Emilie Arel, CEO of the Company, commented, “The agreement with our lenders and equity holders represents their support of FULLBEAUTY’s future success. We are fortunate that FULLBEAUTY has highly relevant brands and a dedicated customer base and I am confident that the outcome of this process will be a more sustainable and stronger company for our customers, employees, vendors and business partners.”

Bloomberg, citing un-named sources, is reporting that about 87.5 percent of the common reorganized equity would go to the First Lien Lenders, including Oaktree, Goldman Sachs and Voya Financial, 10 percent to Second LienLenders, and a slim 2.5 percent to the Sponsors (ie Apax and Charlesbank).

Background
In August 2015, global private equity powerhouse Apax acquired a controlling stake in FULLBEAUTY from Charlesbank and Webster Capital, with Charlesbank maintaining a “substantial” ownership after that transaction closed. In February 2013 Charlesbank and Webster had purchased the Company, then known as OneStopPlus Group, from French retailer PPR SA for $525mn ($157mn of that consideration in equity). According to Moody’s, Charlesbank and Webster lived large, appreciating the full beauty of about $500mn in dividends from the Company before the sale to Apax. Moody’s noted that the dividend payments represented more than 3.5 times the initial equity investment: Plus-sized rewards for what appeared to be plus-sized performance. Moody’s further noted “pro-forma leverage through September 30, 2014, will be around 6x and should drop to the mid-to-low 5x range by the end of 2015, driven by additional top line and EBITDA growth.”

In recent years, however, FULLBEAUTY has faced growing competition from Amazon.com Inc., Kohl’s Corp. and Walmart as those retailers entered the plus-size fray. The Company’s financial results were reportedly also hurt by stock control issues, heavy discounting and inventory clearances. 

FULLBEAUTY first hit the BankruptcyData.com radar screen in May of 2017 following a downgrade by S&P that reflected concerns that the company was over-leveraged and mis-understanding its market. Moody’s slim 5x leverage had ballooned into a size 9x in the estimation of S&P. Since then we have issued six alerts covering the Company’s decline through weak trading conditions, untenable capital structure, engagement of advisors to consider strategic options and missed interest payments.
Ongoing Retail Operations
FULLBEAUTY intends to continue to operate in the normal course during the restructuring process. Further to the commitment of $30mn in new financing by certain existing lenders, the Company believes it will have adequate liquidity to meet its financial obligations to vendors, suppliers, and employees, and expects to continue making payments to these parties without interruption in the ordinary course of business. 

Additional Financing
The Company announced that certain of its existing lenders have agreed to provide $30mn in a new-money term loan. 

Professional Engagements
The Company’s press release noted the engagement of Kirkland & Ellis LLP, PJT Partners and AlixPartners as advisors to the Company. Further engagements include (i) Simpson Thacher representing Apax; (ii) Goodwin Procter representing Charlesbank; (iii) Ducera Partners LLC and Milbank, Tweed, Hadley, & McCloy representing an ad hoc group of First Lien Lenders and (iv) Houlihan Lokey and Paul, Weiss, Rifkind, Wharton & Garrison representing an ad hoc group of Second Lien Lenders.

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