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Law360 (July 24, 2020, 5:13 PM EDT ) Men's clothing retailer Brooks Brothers has secured a $305 million stalking horse offer from apparel company SPARC Group LLC to buy at least 125 retail locations, according to documents filed Thursday in Delaware bankruptcy court.
In filings with U.S. Bankruptcy Judge Christopher S. Sontchi, Brooks Brothers said the stalking horse offer will be subject to better offers at an auction scheduled for next month, with a sale hearing also planned for August.
"The stalking horse bid constitutes the best offer reasonably available for the acquired assets at this time," Derek Pitts of PJ Solomon LP, Brooks Brothers Group Inc.'s Chapter 11 investment banker, told the court in a declaration Thursday. "It is my opinion that subjecting the stalking horse bid to the competitive bidding and auction process established by the bidding procedures will enable the company to solicit higher or otherwise better bids for the benefit of all stakeholders."
In a statement Thursday, Brooks Brothers said SPARC "intends to purchase substantially all the company's global business operations as a going concern for $305 million" and "has also committed to acquiring at least 125 Brooks Brothers retail locations."
SPARC is partially owned by brand development, marketing and entertainment company Authentic Brands Group, which holds a portfolio of more than 50 brands including Aeropostale and Nautica, the statement said.
Under the proposed stalking horse deal, SPARC is set to receive a 3% breakup fee, or roughly $9.2 million, and a $1 million expense reimbursement if it is not the winning bidder. Also, the $305 million stalking horse offer is subject to adjustment if any credit bidding is made, through which existing debt owed is used to purchase assets, according to court filings.
A court hearing to approve the stalking horse bid and bidding procedures is set for early August.
Earlier this month, Judge Sontchi gave Brooks Brothers the go-ahead to tap into debtor-in-possession financing of up to $80 million from affiliates of Authentic Brands Group. The debtors deemed Authentic Brands Group's DIP package as better than a prior offer, in part because it reduced fees and included increased funding and budgeting to wind down the bankruptcy.
The DIP loan will be used to repay $32 million in bridge financing borrowed in the weeks before the Chapter 11 filing and will also fund Brooks Brothers' operations while it navigates an asset sale process, the company said at a hearing earlier this month.
Brooks Brothers and multiple affiliates hit Chapter 11 earlier this month after a 2019 sale process was scuttled by the COVID-19 pandemic and its resulting business restrictions. By February, Brooks Brothers said many of its suppliers in Europe and Asia had fallen victim to those restrictions and stalled its supply chain, and when the virus reached the U.S., the company was forced to shutter its hundreds of retail locations.
While relying on e-commerce sales during the shutdown, the company said it furloughed nearly half of its employees, permanently closed dozens of stores and shut down three U.S. manufacturing facilities, according to court filings.
Brooks Brothers came to court with secured debt consisting of an asset-based lending facility with $212 million outstanding, a $32.5 million term loan and $13.6 million under an uncommitted facility. Another $7.5 million in mortgage debt rounds out the secured obligations. There is $126.3 million in unsecured note debt along with significant trade debt.
Brooks Brothers is represented by Mark D. Collins and Zachary I. Shapiro of Richards Layton & Finger PA, and Garrett A. Fail and David J. Cohen of Weil Gotshal & Manges LLP.
SPARC and Authentic Brands Group is represented by Edward T. Ackerman, Robert B. Schumer, Kelley A. Cornish, Austin Witt and Claudine Meredith-Goujon of Paul Weiss Rifkind Wharton & Garrison LLP.
The case is In re: Brooks Brothers Group Inc. et al., case number 1:20-bk-11785, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Vince Sullivan. Editing by Abbie Sarfo.
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