Elliott Greenleaf New Chapter 11 In re: rue21, Inc.:

 

On May 11, 2017 (the “Petition Date”), rue21, inc. (1645); Rhodes Holdco, Inc. (6922); r services LLC (9425); and rue services corporation (the “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Pennsylvania.

 

The Debtors are represented by Kirkland & Ellis LLP as lead counsel and Reed Smith LLP as local counsel.  The case has been assigned to the Honorable Judge Gregory L. Taddonio. A hearing on the Debtors’ first day motions is scheduled for May 17, 2017. A meeting to form the Official Committee of Unsecured Creditors has been scheduled for May 23, 2017.

 

 

Headquartered in Warrendale, Pennsylvania, the Debtors are a specialty fashion retailer of young men and women’s apparel and accessories. The Debtors have one distribution center located in Weirton, West Virginia, and sell their merchandise to customers in 48 states through their online store and their 1,179 brick-and-mortar stores located in various strip centers, regional malls, and outlet centers. The Debtors employ approximately 15,800 individuals as of the Petition Date.

 

Through various court filings, the Debtors indicate that they have encountered financial difficulty due to the general downturn in the retail industry, decreased sales and increased operating costs, the shift away from brick-and-mortar retail sales to online channels, and the tightening of trade credit in the months prior to the Petition Date. Other factors include the Debtors’ merchandising strategy and issues with e-commerce fulfillment by the Debtors’ outgoing third-party outsourcing services provider. All of these factors have impaired the Debtors’ liquidity, their ability to continue as a going concern without instituting a comprehensive balance sheet restructuring, and their ability to maintain their existing capital structure.

 

 

Bank of America, N.A. is owed approximately $72 million under an ABL facility with a maturity date of October 2018.

 

Wilmington Savings Fund Society, FSB, as successor to JPMorgan Chase Bank, N.A., is owed approximately $521 million under a term loan facility with a maturity date of October 2020.

 

Wells Fargo Bank, N.A. is owed approximately $239 million in unsecured notes with a maturity date of October 2021.

 

 

The Debtors are seeking to Debtors to assume a consulting agreement dated as of April 7, 2017, by and between Debtor rue21, inc. and Gordon Brothers Retail Partners, LLC to close 396 under-performing stores.  The store closings began on or about April 14, 2017 and are expected to continue until at least June 25, 2017.

 

 

The Debtors are seeking to obtain senior secured postpetition financing on a superpriority basis consisting of a senior secured superpriority revolving credit facility (the “DIP ABL Credit Facility”) pursuant to a senior secured, super-priority Debtor-in-Possession credit agreement with Bank of America, N.A., in the amount of $125 million, including a $25 million sublimit for the issuance of letters of credit and a $15 million sublimit for swing line loans.

 

The Debtors are also seeking to obtain senior secured postpetition financing on a superpriority basis (the “DIP Term Loan Facility”) pursuant to the terms of the senior secured super-priority Debtor-in-Possession credit agreement with Wilmington Savings Fund Society, in the amount of $140 million on an interim basis and $150 million on a final basis.

 

 

 

The Debtors seek authority to pay certain employee obligations and maintain and continue employee benefits programs and schedule a final hearing on the motion.

 

As of the Petition Date, the Debtors employ approximately 15,800 employees. Approximately 3,500 are full time employees, and 12,300 are part-time employees. The Debtors owe approximately $6.4 million of unpaid accrued wages, salaries, gratuities, overtime pay and other compensation. The Debtors assert that no employee is being paid more than the $12,850 statutory cap on prepetition wages. 

 

 

The Debtors seek authority to maintain existing insurance policies and pay all obligations and to renew, revise, extend, supplement, change, or enter into new insurance policies in the amount of $200,000 on an interim basis.

 

The Debtors pay approximately: $175,322 for the annual premium for the D&O Insurance Program, $333,743 for the liability insurance program, $492,236 for property insurance, $79,711 for umbrella insurance, $19,585 for crime insurance, and $162,638 for automobile insurance.

 

 

The Debtors are seeking authority to continue, maintain, and to pay pre-petition obligations related to, their pre-petition customer programs which include gift cards, rueBucks program, promotional programs and credit card programs. The Debtors argue in the motion that the success of the Debtors’ business depends upon the loyalty of their customers and request authority to pay $1.745 million on an interim basis and 2.37 million on a final basis. 

 

 

The Debtors are seeking authority to pay certain prepetition taxes and fees that, in the ordinary course of business, accrued or arose before the Petition Date.  As of the Petition Date, the Debtors owe approximately $10.44 million in prepetition taxes and fees.  The Debtors are requesting $8.47 million on an interim basis.

 

 

The Debtors seek entry of an order authorizing the Debtors to pay in the ordinary course of business all undisputed, liquidated, prepetition amounts owing to certain shippers and warehousemen.  The Debtors believe that it is necessary and essential to preserving the value of their estates that they be permitted to make payments on account of certain shipping and warehousing charges in an amount up to $3.5 million, on an interim basis, and up to $4.0 million on a final basis.