Tailored Brands emergency loan gets court approval
UPDATE: April 5, 2021: Federal bankruptcy judge approved financing deal that injected $ 75 million in emergency capital into Tailored Brands and provided more than $ 3 million to buy out minority stake in the business owned by unsecured creditors who received shares in the reorganization of Chapter 11 of the retailer.
After lawyers for the minority shareholder group suggested the deal may have been designed to push them back, Judge Marvin Isgur said there was “no evidence of this”, according to the audio of a hearing Thursday.
- Minority shareholders of Tailored Brands have the opportunity to investigate a emergency loan agreement that some say would bypass them massively.
- What is at issue are the conditions and circumstances surrounding a A $ 75 million lifeline from an existing lender and Tailored Brands’ largest shareholder. The deal gives lender, Silver Point Capital, convertible notes that would dilute the value of shares to minority shareholders, a group of unsecured creditors who received shares in the retailer’s reorganization last year.
- Silver Point offered a repurchase of the shares, which several shareholders said amounted to less than half a cent on the dollar for their claims. In a Monday hearing, a federal bankruptcy judge gave stakeholders two weeks to investigate the case, according to the court audio.
One of the main issues raised by those who dispute the loan to Tailored Brands, which owns the brands Men’s Wearhouse and Jos, among others. A. Bank, is the precise financial position of the men’s clothing retailer who has took a beating amid the COVID-19 pandemic.
A trustee of minority shareholders published an opinion in February that Tailored Brands had suffered “Unanticipated declines in business” and faced a possible default on debt, which could trigger another Chapter 11 filing after last year’s bankruptcy and potentially even liquidation.
Further, the trustee said in the notice that the retailer had “seriously underperformed against financial projections” set out in its Chapter 11 reorganization plan.
But one of the shareholders, Venkatesh Reddy of Zeo Capital Advisors, noted in a letter to court earlier this month that Tailored Brands had told media the company was exceeding its own estimates. A Tailored Brand spokesperson told Retail Dive and other outlets in March that the company had “exceeded forecasts shared with potential investors every week for the past two and a half months.”
Shareholders raised questions about the apparent contradiction in projections related to Tailored Brands’ bankruptcy plan that the company failed to meet, which could trigger a default. – and estimates shared with investors that Tailored Brands said it exceeded.
“For the reorganized debtor to outperform the lowered forecast for 2.5 months, that forecast would go back to the second week of December at the latest, ”Reddy said in the letter. “It’s less than a month after confirmation and less than two weeks after the plan goes into effect. It is unreasonable to believe that a new forecast was first needed or created within this time frame. On the contrary, such a forecast was probably made or at an advanced stage before confirmation. “
In a hearing Monday, Kirkland & Ellis attorney Joshua Sussberg, who represents Tailored, called the new loan a “lifeline” that “got us through a short-term liquidity crunch,” according to an audio recording of the hearing. Sussberg also said “absolutely nothing bad” had happened in the loan negotiations.
Zeo and other trust shareholders have also objected to the payments to the trustee and the company’s deliberations at Tailored Brands around the Silver Point loan which took place without the participation of the trustee, which they say is required by Tailored’s reorganization plan.
With more questions, the bankruptcy judge overseeing the Tailored Brands case, Marvin Isgur of the Southern District of Texas, gave the trust shareholders time to ask Tailored Brands questions and come back with more specific objections, if they had any. “I don’t really smell a rat here,” Isgur said during the hearing. “We had a business that ran into problems.” The judge added: “We must give people a fair opportunity to investigate.”