Brooks Brothers to Sell $ 325 Million to SPARC Group – WWD
Brooks Brothers will be sold to SPARC Group, the link between licensing company Authentic Brands Group and shopping center operator Simon Property Group.
In a hearing Friday, the Delaware bankruptcy court overseeing the case approved the deal, in which SPARC declared its intention to keep at least 125 stores open.
Advisors at the retailer, as well as its employees and suppliers, have generally praised the result, which will keep the 202-year-old company in business despite the COVID-19 pandemic – a particularly devastating time for the retail industry.
“The proposed transaction provides for $ 325 million, subject to certain adjustments, in proceeds for the benefit of the debtors ‘estates, the assumption of certain debtors’ liabilities, the continued operation of a minimum of $ 125 million. Brooks Brothers North American stores, the preservation of global debtor operations, the ability to create thousands of jobs and long-term contractual consideration for debtor sellers, ”said Garrett Fail, partner at Weil Gotshal & Manges LLP and lawyer by Brooks Brothers. , at the hearing.
At the same time, employees, vendors and owners – although they did not object to the sale itself – have raised concerns that the deal will still leave them in limbo for months to come. . At the time of its bankruptcy, Brooks Brothers said in court records that it had laid off some 2,900 employees due to the pandemic.
Chapter 11 rules generally give bankrupt businesses the time and flexibility to choose which of their existing contracts, such as store leases, they wish to keep or reject. Here, new buyers have until December to decide which of the 125 locations they plan to keep, what supplier contracts they plan to take, and possibly which employees they plan to rehire.
On Friday, employee attorneys and the company’s largest unsecured creditor, Swiss Garments Co., which makes about 70% of the costumes sold in Brooks Brothers stores, said the deal left their future to the brand by question.
Richard Seltzer of Cohen, Weiss and Simon, an attorney for the Workers United union, which represents hundreds of Brooks Brothers employees, told the court the buyers made no commitments to hire any of the bargaining unit employees .
“These bargaining unit employees, many of whom are long-term, have special and unique relationships with clients that are essential in bringing the best of the old Brooks to the new Brooks,” Seltzer told the court.
“As I said, it is unfortunate that to date the buyer, described as a working buyer, has not yet made a commitment to rehire a single Brooks Brothers employee,” he said. declared. “Continuous sales can relate to the rejection or assumption of contractual obligations. But they should not be about the rejection of talented, loyal and experienced human beings. ”
A lawyer for Swiss Garments Co., who is also on the unsecured creditors committee, also told the court the company feared a potential delay of several months before it was certain whether it would continue to be a supplier to the new Brooks. Brothers. Having that certainty would help them ship their fall and winter merchandise to Brooks Brothers as soon as possible, said Swiss Garments attorney Erika Morabito of Foley & Lardner.
“Many of us are left with great uncertainty as to what the future holds for us in this case,” Morabito told the court. “And I know that is not uncommon in bankruptcy cases, but there is also a lot of uncertainty, as my colleagues have pointed out, with the time frames for taking on or rejecting contracts.”
“This leaves them in great uncertainty in terms of ordering raw materials, manufacturing products, shipping products, paying their vendors and suppliers,” she added.
Kelley Cornish, a partner at Paul Weiss Rifkind Wharton & Garrison LLP, which represents the SPARC Group, said at the hearing that the company will decide over the “next few months” which 125 stores it will keep open.
“I would just say your Honor, in response to all the different statements that have been made, that we look forward to completing this transaction very quickly by the end of the month and moving forward as quickly as possible in the future. under the circumstances, ”said Cornish.
Sellers ‘and homeowners’ advisers also argued on Friday that they may not be adequately protected if the sale and debtor-in-owner financing leaves insufficient funds to pay administrative claims, i.e. the money owed for goods and services provided during bankruptcy.
Unlike general unsecured debts, which are payments that a bankrupt company owes before filing for bankruptcy and which are not entitled to full reimbursement, the bankruptcy code gives priority to the reimbursement of administrative debts. Swiss Garments, for example, owes $ 5.2 million in unsecured pre-bankruptcy general debts, as well as $ 500,000 in administrative claims for products it supplied during bankruptcy.
Bankrupt businesses that cannot pay their bills incurred during their Chapter 11 proceedings risk what is known as administrative insolvency, which would prevent confirmation of a final plan, but without affecting an already approved sale.
But in either case, Delaware bankruptcy judge Christopher Sontchi was convinced that debtors faced relatively low odds of administrative insolvency. Judge Sontchi also approved the final approval of the $ 80 million DIP funding in the case, which was also provided by ABG and Simon.
Lawyers for Brooks Brothers told the court that so far the company has used $ 60 million of that amount to run its business and fund Chapter 11 proceedings. They said the remaining $ 20 million of the DIP facility would give the company enough liquidity to close the sale to SPARC in the weeks to come.
Judge Sontchi said the terms of the deal and the financing, as well as the loan budget presented by the company, showed sufficient assurance that the company could pay its administrative costs during the case, and particularly in the difficult circumstances of the pandemic.
“Debtors do not need to be guarantors of administrative solvency, and secured lenders do not need to be insurers of administrative solvency,” Justice Sontchi said at the hearing. “I think the particular facts and circumstances of the case are very important, and they have never been more important than in the past six months.”