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June 12, 2019 – The Court hearing the Things Remembered, Inc. (now, RMBR Liquidation, Inc.) cases confirmed the Debtors' Joint Chapter 11 Plan of Liquidation and approved a related Disclosure Statement on a final basis [Docket No. 510].
On February 6, 2019, Things Remembered and three affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10234. In its Petition, Things Remembered, an omnichannel retailer of personalized gifts and merchandise marketed through a portfolio of physical stores, noted between 10,000 and 25,000 creditors; estimated assets between $50mn and $100mn; and estimated liabilities between $100mn and $500mn.
Overview of the Plan
The Disclosure Statement states, “Generally speaking, the Plan:
- Provides the vesting of all Available Cash from the proceeds of Sales Transactions in the Post-Effective Date Debtors, for the purpose of distribution to holders of Claims;
- Provides for the full and final resolution of funded debt obligations;
- Designates a Plan Administrator to wind down the Debtors' affairs, pay and reconcile Claims, and administer the Plan in an efficacious manner; and
- Provides for 100 percent recoveries for holders of Administrative Claims, Secured Tax Claims, Priority Tax Claims, Other Priority Claims and Other Secured Claims."
That is the palatable part of the Plan description. As noted below, classes 5 and 6, which together provided the Debtors with more than $185.0mn, are both left with 0% recoveries. These classes are deemed to reject and will not be allowed to vote on the Plan. The only voting class is class 4 (“Revolver Claims”) which is set to recover 76.4%.
As previously reported, On March 6, 2019, the Court hearing the Things Remembered cases issued an order authorizing the sale of substantially all of the Debtors' assets to stalking horse bidder Enesco Properties, LLC (“Enesco”) for $17.5mn. Proceeds from the Enesco sale will be used to make payments to holders of the Revolver Claims.
In a press release announcing its purchase of the Debtors' assets, Enesco stated: "The Things Remembered online, direct mail, and B2B retail businesses, as well as 176 of its stores, will continue to operate under its brand, preserving approximately 1,400 jobs."
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and the estimated recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and the estimated recovery is 100%.
- Class 3 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and the estimated recovery is 100%.
- Class 4 (“Revolver Claims”) is impaired and entitled to vote on the Plan. The estimated aggregate amount of claims is $18.7mn and the estimated recovery is 76.4%. The following shall be paid to the Prepetition Agent to be applied toward the Revolver Claims until the Revolver Claims are paid in full: (i) any Available Cash after the funding of the Priority Claims Reserve, the Professional Fee Escrow Account and the Wind Down Amount and the reserve or payment in full of all Allowed Secured Tax Claims and All Other Secured Claims, and (ii) any Reserve Residuals.
- Class 5 (“Term Loan Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is $124.9mn and the estimated recovery is 0%.
- Class 6 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is $60.3mn and the estimated recovery is 0%.
- Class 7 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.
- Class 8 (“Interests in Holdco”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated aggregate amount of claims is N/A and the estimated recovery is N/A.
In a declaration in support of the Chapter 11 filing (the “Duffy Declaration”) [Docket No. 4], Robert J Duffy, the Company’s Chief Restructuring Officer, described “a confluence of factors” contributing to the Debtors’ need to commence the chapter 11 cases, including (i) macroeconomic factors—most significantly, the general shift away from brick-and-mortar stores to online channels and the accompanying departure of anchor mall tenants and (ii) microeconomic factors— including delays in the website migration, year-over-year lagging store sales, delayed procurement and non-receipt of inventory due to vendor payment issues. Over time, these factors tightened liquidity, with year-to-date comparable store sales declining 6.2% percent and a negative year-end EBITDA of $4 million and further complicated relationship with nervous vendors. These factors culminated in a liquidity crisis by December 2018, when the Debtors faced “dwindling cash flows, inaccessible inventory, tightening trade credit, the inability to access incremental liquidity, and winter holiday sales below historical numbers.”
Operational Challenges: In addition to the challenges facing brick-and-mortar retailers generally, the Debtors have also suffered from operational challenges that contributed to a steep decline in EBITDA. First, the Company expended substantial capital in 2016 to revamp the merchandise structure and enhance the personalization experience. These improvements temporarily drove positive comparable store sales but were offset by a decrease in foot traffic due to numerous anchor tenants terminating leases through bankruptcy or otherwise. Second, in November 2016, a website migration experienced technical challenges which impacted sales. Third, in addition to challenges associated with the website migration, consistently declining sales squeezed liquidity and further forced cost cutting in key business areas, including with respect to marketing, inventory, store leases, and employees.
Supply Chain and Vendor Challenges: As liquidity tightened, vendors began to place pressure on the supply chain cost structure by delaying or cancelling shipments until receiving payment. Beginning in August 2018, merchandise shipments and inventory receipts began to slow due to shrinking liquidity and a lack of vendor support. Prior to the Petition Date, substantial numbers of vendors refused to ship inventory unless the Debtors paid cash on delivery, resulting in shelf-ready merchandise being stranded. Specifically, a large volume of inventory that was critical for the winter holiday season lay dormant in distribution centers and ports and was inaccessible due to a lack of liquidity necessary to satisfy vendors, which hurt the Company’s performance during the all-important winter holiday season.
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