Delaware Chapter 11: John Varvatos Enterprises, Inc.
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All Documents Can Be Accessed by Clicking the Case Title Immediately Above
CASE DETAILS
Link: Petition
On May 6, 2020 (the “Petition Date”), John Varvatos Enterprises, Inc. and its affiliates Lion/Hendrix Corporation and John Varvatos Apparel Corp. (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Debtors are represented by Morris, Nichols, Arsht & Tunnell. The case has been assigned to the Honorable Mary F. Walrath. A hearing on the Debtors’ first day motions was held on May 7, 2020. The response date for the committee questionnaire is May 14, 2020 at 4:00 p.m.
ABOUT THE DEBTORS
Link: Affidavit in Support
Founded in 2000, the Debtors form a globally recognized luxury menswear brand which manufactures suits, long-line jackets and waistcoats, jeans, jewelry, boots, and leather jackets, which are sold in a variety of branded collections. The Debtors sell their merchandise through department store and specialty wholesale distribution, a globally accessible website, and twenty-seven brick-and-mortar retail locations. The Debtors have licensed five product categories – fragrance, eyewear, leather accessories, jewelry, and swimwear – from which they generate revenue through royalties. The Debtors also have a wholesale distribution license for Canada, and a licensed partner that independently leases and operates a branded retail store in Guadalajara, Mexico.
Prior to the COVID-19 pandemic, the Debtors employed approximately 302 individuals, nearly all of whom were located in the U.S. As of the Petition Date, the Debtors workforce constitutes fifty-seven active employees, of which forty-eight are working with significant pay reductions.
The Debtors experienced a number of factors that negatively impacted their financial performance over the last several years, including declines in revenue due to altering the brand’s clothing to attract the mass market, losing some wholesale partners while others reduced their wholesale purchases, and opening new stores with poor rental economies. The Debtors implemented strategies to improve their financial performance – they hired a new CEO, secured additional liquidity, and hired a financial advisor – and, at the start of 2020, experienced near double-digit sales increases in their full-price retail stores and online business. However, the unprecedented onset of COVID-19 and the resulting closures of non-essential retail operations destroyed any new success. On March 18, 2020, the Debtors were forced to temporarily close of all of their U.S. and Canadian locations, as were their department-store and independent-retail partners, drastically impacting the Debtors’ wholesale business. While the Debtors have experienced better-than-expected e-commerce sales, the revenue generated is insufficient for the Debtors to pay their debts as they become due. The Debtors are therefore determined to commence a competitive marketing process to solicit bids for the sale of substantially all of their assets.
FINANCIAL CONDITION
As of the Petition Date, the substantial majority of the Debtors’ liabilities consisted of funded indebtedness, including $19,450,000 owed under a credit agreement with Wells Fargo Bank, N.A. and its affiliated lenders, and $94,779,483.29 in promissory notes from its non-Debtor affiliate and owner Lion/Hendrix Cayman Limited (“L/H Cayman”). The Debtors estimate that their unsecured debt aggregates approximately $26.1 million, primarily made up of trade debt and lease obligations, and of which approximately $6.8 million is owed to third-party trade creditors.
SALE OF THE COMPANY
In consultation with their restructuring committee, the Debtors determined that, out of three interested parties, L/H Cayman – the direct or indirect owner of 100% of the equity in each of the Debtors – offered the highest and best overall transaction for the Debtors’ assets. As of April 12, 2020, L/H Cayman has been selected to be the stalking-horse bidder, agreeing to purchase substantially all of the Debtors’ assets and certain designation rights for the Debtors’ unexpired leases, for an aggregate $76 million credit bid.
DIP/CASH COLLATERAL MOTION
Links: DIP Motion DIP Budget
In connection with its bid, L/H Cayman agreed to provide the Debtors with postpetition financing to ensure they have sufficient funds to maintain their businesses and going-concern value, and to continue their marketing efforts postpetition. The Debtors have negotiated with L/H Cayman to obtain use of cash collateral and access to up to $20,500,000, including the refinancing of $13,666,666.66 of the outstanding promissory notes into obligations under the DIP facility and funding of certain expenditures set forth in an approved budget.
Related First-Day Motions Can Be Accessed by Clicking on the Links Below
SUMMARY OF FIRST DAY MOTIONS (Excel chart)