Navigating Bankruptcy Filing for an Apparel Retailer
Reworking a Cash-Recovery Reorganization for Success
A 70-year-old specialty apparel manufacturer and retailer was planning to file for bankruptcy to facilitate a refinancing process and increase working capital liquidity ahead of its busy sales season.
Client Situation and Challenge
The committee of unsechured creditors for an off-price home goods retailer needed assistance recovering cash from the retailer, which had plans to reorganize. The home goods retailer was hit especially hard during the COVID-19 pandemic.
Client Situation and Challenge
A 70-year-old specialty apparel manufacturer and retailer was planning to file for bankruptcy to facilitate a refinancing process and increase working capital liquidity ahead of its busy sales season. To meet the objective, the retailer needed assistance developing a strategic plan prior to filing for bankruptcy that included warehouse consolidation, inventory rationalization, contract renegotiations, financial and borrowing base projections, and website and direct-to-consumer ROI evaluation.
Client Situation and Challenge
BDO worked with the retailer on a strategic plan that included the identified tactics and uncovered EBITDA and working capital savings opportunities. BDO also led discussions with the pre-petition lender to negotiate forbearance agreements ahead of the bankruptcy filing. Further, BDO was engaged as the financial advisor in bankruptcy, providing key services such as filing statements of financial affairs and schedules of assets and liabilities, producing monthly operating reports, and developing cash flow forecasts. BDO also took part in critical negotiations for debtor-in-possession financing, exit financing and equity capital.
BDO Solution
The client emerged from bankruptcy with a $140 million asset-based lending facility and recapitalized $25 million of new equity. The funds were used to pay pre-petition lenders, cover administrative expenses — including key inventory ahead of its busy season — and codify a distribution model to pay pre-petition unsecured creditors.
Project Outcome
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With support from BDO, the unsecured creditors committee was able to rework the recovery plan and negotiate a 100% cash recovery of all unsecured claims.
As a result of the tireless work and commitment to achieve the best outcome for the client and other parties involved, BDO was named a winner of the 2021 Turnaround Management Association’s “Large Company Turnaround/Transaction Award” for this engagement.
Project Outcome
BDO was engaged to monitor the retailer’s weekly cash flows, ongoing going-out-of-business sales for closing stores, sale process to sell the business as a going concern and financial projections supporting the plan of reorganization. The team also analyzed the company’s ongoing exit financing negotiations. After an extensive marketing process to multiple financing parties, BDO helped consider the various proposals and evaluated the post-effective date capital structure of the reorganized entity, primarily as it related to the recoveries for the unsecured creditors committee.
BDO Solution
The retailer filed for Chapter 11 and closed nearly 30% of stores. After filing, the retailer sought a plan of reorganization that initially included a partial cash recovery to the unsecured creditors at bankruptcy exit, with the remainder to be issued as five-year bonds. The committee, however, sought greater cash recovery and looked to BDO for assistance.
Client Situation and Challenge
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