Kitten Heels are Dead. Long Live Kitten Heels.

The retailpocolypose is continuing at full speed, impacting retailers both here in the US and across the pond. Clothing retailer LK Bennett Ltd. is the latest High Street casualty, closing five stores and going into administration in the UK. It is joined by its New York-based subsidiary, L.K. Bennett U.S.A., which has filed for chapter 11 protection in the Delaware Bankruptcy Court.

Company Background

Opening in London in 1990 to bring “a bit of Bond Street luxury to High Street,” LK Bennett quickly established itself as an upmarket retailer. And its founder, Ms Bennett, just as quickly established herself as “the Queen of the Kitten Heel.” Bennett’s “smart” dayware is a favorite of Princess Kate Middleton and other celebrities. And even Prime Minister Theresa May has been knows to step out in LK Bennett kitten heels.

Faltering Steps

Corporate missteps and a challenging retail environment have led to declining sales and, ultimately, bankruptcy.  Many of the elements of the LK Bennett story are all too familiar.

  • The UK clothing and footwear sector are suffering from price deflation, leaving LK Bennett priced beyond the reach of most shoppers.
  • Today’s retail environment is all about authenticity and distinctiveness; LK Bennett has failed to embrace a sense of uniqueness and creativity that would set it apart from more competitively priced competitors in a saturated market.
  • An excessive number of stores at above-market rates – exacerbated by decreasing foot traffic and overdependence on sales at brick & mortar locations – has left the company struggling with excessive lease costs.
  • LK Bennett has also failed to connect with its young consumers via social media and has been overtaken by younger, more-affordable and digitally-savvier brands. (Sorry, Prime Minister.)
  • Ownership changes have left strategies in flux without time to take root and come to fruition.

And by the way…. is an “affordable luxury brand” even a thing?  Are consumers who are willing to invest in a luxury pair of shoes more likely to go all in and aim for a recognized high-fashion shoe brand, such as Jimmy Choo? 

What Comes Next for LK Bennett?

Interested buyers have been actively pursuing the company, at least in the UK. Similarly to (much, much) edgier UK lingerie brand and retailer Agent Provocateur, LK Bennet’s counterpart bankruptcy filing for its US subsidiary has likewise been teed up to pursue a sale.

Case Information

L.K. Bennett U.S.A. is represented by DLA Piper as counsel and Ernst & Young as restructuring advisor. The case number is 19-10760. The case has been assigned to Judge Kevin Gross.

Mette H. Kurth

Z Gallerie Suffers Self-Inflicted Wounds, Files Chapter 22 Bankruptcy Case

Z Gallerie, LLC, a CA-based home furnishing and décor retailer with 76 stores nationwide, has filed for Chapter “22” protection in Delaware.

Committee Formation Meeting

The Committee formation meeting is set for Wednesday, March 20, 2019 at 10:00 a.m. at the Doubletree Hotel in Wilmington, DE. Be prepared for a high of 50, a low of 34, and scattered showers. (Not that the weather in LA will be much better…. a high of 66 and more showers).

How Did It Get Here?

Founded in 1979, Z Gallerie filed its first Chapter 11 case in 2009 in the aftermath of the Great Recession.  At that time the original founders, the Zieden siblings, reacquired the company.  In 2014, the Ziedens sold majority control of the company to its current owner, Brentwood Associates, in a $110 million leveraged buyout.  Subsequently, the company’s performance declined significantly, bringing it to where we are today.

Z Gallerie is one of several recent furniture retailers to seek bankruptcy protection, including retailer The Robert Allen Group and Heritage Home Group. But unlike other retailers, Z Gallerie did not fall victim to the “retailpocolypse” but to self-inflicted wounds. The good news? Management is confident that it has addressed its operational missteps and is well on the way to turning the company around. Among the issues?

  • A steep decline in revenues after the Brentwood acquisition.
  • Leverage and liquidity issues.
  • A failed expansion strategy.
  • Delay in launching an e-commerce platform.
  • The failed launch of a new distribution facility.
  • The loss of a major supplier.

In 2018, the company generated more than $200 million in sales.  But at the time of the filing, it had less than $2 million in cash on hand.  Running out of adequate cash to fund operations, Z Gallerie approached its prepetition lenders for additional liquidity but could not secure operating funds outside of a Chapter 11 process.


Imagining the future…. “Speed and cooperation” will determine whether Z Gallerie survives.

Where Is It Headed?

The Plan and Sale Process

Z Gallerie has secured $28 million in DIP financing commitments, conditioned on the company moving rapidly through the bankruptcy process.  To that end, Z Gallerie has already filed a “toggle plan” providing for either the marketing and sale of the company or a debt for equity swap “on terms to be determined.” The proposed timeframe is roughly as follows:

  • March 25: File disclosure statement.
  • April 12: Enter final DIP financing order, bid procedures order
  • April 19: Term sheets due from potential buyers.
  • May 7: If indications of interest are insufficient to pay off lenders, provide evidence of exit financing or execute a business plan that significantly reduces debt by aggressively shuttering stores.
  • May 7: Order approving disclosure statement.
  • May 16: Bid deadline.
  • May 20: Auction for substantially all assets.
  • May 29: Finalize asset purchase agreement.
  • June 17: Enter order confirming plan or approving sale.

The plan, however, is essentially a placeholder with significant gaps to be filled in. For example, treatment of critical trade claims and general unsecured claims is “to come.”

Store Closings

Meanwhile, the company is seeking to close up to 17 stores and requesting approval of streamlined procedures to conduct store closing sales.  It anticipates 59 go-forward locations (55 stores, two outlets, and two distribution centers).

The First Day Hearing

Z Gallerie’s financing, and other first-day relief, was approved at the first day hearing held today, Tuesday, March 12, at 3:30 p.m.

Mette K.

Promise Healthcare Files For Bankruptcy, Promises Improved Financial Health

Promise Healthcare Group and numerous affiliates filed for Chapter 11 protection Sunday night in Delaware.

What Ails Promise Healthcare?

Promise Healthcare is a Florida-based specialty post-acute care healthcare provider operating several hospitals and skilled nursing facilities across nine states. It operates two short-term acute care hospitals, 14 long-term acute care hospitals and two skilled nursing facilities. According to the company, Promise Healthcare is one of the largest long-term acute care hospital operators in the U.S.

“While I believe that the Debtors’ overall business is fundamentally strong, [Promise Healthcare has] been operating with an unsustainable balance sheet due to current industry dynamics and certain underperforming facilities within [its] portfolio.”  – Andrew Hinkelman, FTI Consulting, Chief Financial Officer

Like many hospital operators that have filed chapter 11 recently, such as ManorCare Health Services, Promise Healthcare has suffered from significant reductions in reimbursement rates from The Centers for Medicare & Medicaid Services. Average reimbursement rates for non-qualifying patients have dropped roughly $41,000 per stay industry wide. Coupled with Promise’s inability to adjust operating cost structures, this has directly impacted profitability.

What Are the Next Steps on the Road to Recovery?

Step 1: Sell Non-Core Assets.

Promise Healthcare has already received  purchase offers for several non-core assets.  Offers in hand, it hopes to complete sales and use the proceeds to pay down secured loans over the next three months.

  • The Silver Lake Facility:  L.A. Downtown Medical Center has offered to purchase Promise Healthcare’s Silver Lake facility section for $84.15 million. The offer will be subjected to overbids in a bankruptcy auction.  A sale closing is planned for January or February of 2019.
  • The St. Alexius Facility: Promise Healthcare has been looking for a buyer for its facility in St. Louis for the past year-and-a-half to two years. However, it has been hindered by the termination of its Medicare program in November, the need for substantial capital improvements, and heavy operating losses.  Despite these challenges, Promise Healthcare is negotiating a stock sale which it hopes to conclude by year end.
  • San Diego Property: Promise Healthcare is also in final negotiations to sell its San Diego property.  It hopes to conclude this sale as well by year end.

Step 2: Obtain Postpetition Financing.

Promise Healthcare has requested $85 million in postpetition financing, including a rollup of its $65 million prepetition asset-based revolving loan facility and a new money commitment of $20 million, with prepetition revolving lender Wells Fargo Bank as agent.

Step 3: Come Up With an Exit Strategy.

Over the next 6 months, Promise Healthcare will search for an exit. That could be a buyer for the business. Or an equity sponsor who will support a reorganization.  Houlihan has already contacted 77 financial and strategic partners and received “several” indications of interest. Ultimately, Promise Healthcare hopes to file a bid procedures motion by the end of the year, with the intention of closing a sale around April 2019.

Prime Clerk is the claims agent. Additional information about the case is available here.

Mette K.

 

 

Papa Gino’s & D’Angelo Enter Bankruptcy

PGHC Holdings, operator of New England-based Papa Gino’s and D’Angelo, filed for chapter 11 protection on Monday.  Not surprisingly, the case is pending in Delaware.

Reasons for the Bankruptcy? Same Old/Same Old

Also not surprising, the bankruptcy follows performance struggles faced by both Papa Gino’s and D’Angelo as a result of:

  • Evolving consumer dining preferences;
  • Increased labor costs; and
  • Increasing competition among national chains.

Remember Real Mex, for example? Or Bertucci’s? Restaurant growth is continuing to slim down, folks….

In addition to operational factors, Papa Gino’s and D’Angelo have a substantial debt load that they have been unable to service. This includes: $18.5 million in first-lien, secured debt; $34.2 million in second-lien, secured debt; $39.9 million in unsecured mezzanine debt; and $9 million in unsecured trade debt, lease obligations and repair obligations. And Pappa Ginos and D’Angelo are in default under both the first and second lien agreements while the 16% senior subordinated notes matured last June. Ouch.

What Happens to Papa Gino’s and D’Angelo’s Next?

Although Papa Gino’s may be a “New England original,” its bankruptcy plans are not.

The company intends to close roughly 92 locations (47 Papa Gino’s / 45 D’Angelo). In addition, they have secured a $13.8 million in post-petition financing from an existing, secured lender to keep the company afloat. And a credit bid by the lender’s designee, a Wynnchurch Capital portfolio company, serves as the “stalking horse,” opening offer to purchase both the Papa Gino’s and D’Angelo restaurants. The stalking horse credit bid is $20 million plus assumption of certain liabilities.  Ultimately, a bankruptcy auction will determine the highest and best bidder.

The sale timeline is:

  • Bid procedures shall be established by December 17, 2018;
  • The auction is to be held by January 28, 2019;
  • A hearing on the sale shall be held and sale order entered by January 31, 2019; and
  • The sale closing shall take place by January 31, 2019.

Papa Gino's

Papa Gino’s and D’Angelo have issued a press release. The proposed sale transaction, they say, will significantly strengthen their financial resources. This will allow the restaurants to remodel and modernize across MassachusettsNew HampshireRhode Island, and Connecticut. They also plan to open additional restaurants throughout New England.

Hungry? Look forward to enhanced on-line ordering capability as well.

Mette K.

Filing Alert: Samuels Jewelers Files… A “Chapter 44”?!

Texas-based retail jewelry store operator Samuels Jewelers has filed its fourth Chapter 11 bankruptcy case. This time, the beleaguered company is hoping for a going concern sale.

The First Three(!) Chapter 11 Cases

Samuels Jewlers traces its origins to a jewelry chain founded in 1891, Barry’s Jewelers, as a single store in Los Angeles. In the 1980s, Barry’s rapidly expanded into indoor shopping malls.  At the time, it was one of the fastest-growing jewelry chains in the country.  But Barry’s experienced small waves of unprofitability, filing Chapter 11 petitions in 1992 and 1997.  Following the second bankruptcy, it changed its name to Samuels Jewelers, its most recognizable brand.  The company filed its third bankruptcy in 2003, emerging with new owners. It later relocated to Texas.

Who Is Samuels Jewelers?

emerald-1137412_1920Gitanjali Gems, an Indian public company, acquired the company in 2006.  Samuels Jewelers operates over 120 stores across 23 states. Its brand names include Roger Jewelers, Andrews Jewelers, Schubach Jewelers, and Samuels Diamonds. In addition to its retail stores, the company has an e-commerce operation.

Why Has It Filed Another Bankruptcy Case?

The company cites several operational problems leading to its bankruptcy filing:

  • Increased industry competition from discount and e-commerce stores;
  • Operational deficiencies;
  • Climbing expenses;
  • A failure to keep up with customer preferences and build up of stale inventory.

The company has also been hard-hit by negative publicity associated with an investigation by the Indian Central Bureau of Investigation (CBI) into Gitanjali – Samuel Jewelers’ sole equity holder and one of its suppliers and lenders. The CBI has alleged that Gitanjali and others defrauded multiple Indian banks. Samuels’ states that some of its former directors, board members, and executives have been implicated, including its former CFO and president. While Gitanjali is no longer operating, this has disrupted Samuels Jewelers’ product supply and funding sources. And the situation has caused the company to lose standing with vendors, resulting in terminated relationships and more supply chain disruption. Moreover, according to the company new details and allegations continue to surface.

Samuels is at least the second jewelry company to file a chapter 11 case this year in the aftermath of a CBI investigation. In February, Firestar Diamond filed for Chapter 11 bankruptcy protection following news reports in India that its majority shareholder and parent had colluded with Punjab National Bank to obtain over $1 billion in unauthorized loans.

The (Hail Mary) Sale Effort

Although Samuels Jewelers says it is seeking a sale, its filings indicate it has yet entered into a purchase agreement with anyone. In fact, it has not even hired an investment banker. That is “in process,” it says. But the company states optimistically that it has received “some indication of interest” and is “hopeful” that a sale will be possible.

Meanwhile, Samuels Jewelers plans to start selling excess inventory and run store closing sales.  It has enlisted a joint venture of Gordon Brothers Retail Partners and Hilco Merchant Resources as an asset disposition consultant to help with that effort.

Because Samuels Jewelers is pursuing a potential going-concern sale, the consulting agreement includes a fiduciary out provision to allow the  company to terminate the agreement and pursue a partial or full going-concern sale.

The Committee Formation Meeting

girl-1438138_1920.jpgThe committee formation meeting is set for Thursday, August 16, 2018, at 10:00 a.m. It will be held at The Du Pont Hotel in Wilmington, DE. While you’re there, you can check out the “classy nouveau Victorian-inspired” lobby makeover by acclaimed New York architect and interior designer Campion Platt. Or stay in touch with your office with their new, top of the line Wi-Fi.  But definitely stay inside.  The weather forecast?  83 degrees, a downright tropical 65% humidity, and scattered thunderstorms.

Case Information

The case number is 18-11818, and it is pending in the Bankruptcy Court for the District of Delaware. The case has been assigned to Judge Kevin Carey. Prime Clerk is the claims and noticing agent.  For more information, you can view the company’s “first-day” global declaration here.

Mette K.