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Orchard Brands Scores $90M Exit Loan Agreement

Bankrupt affiliates of Orchard Brands Corp. received bankruptcy court approval Tuesday in Delaware to enter into a new $90 million exit financing agreement with PNC Bank NA that provides better terms than a previous deal with other lenders.

Attorneys for the clothing retailer said at a hearing in the U.S. Bankruptcy Court for the District of Delaware that the alternate loan would provide $6 million more in "borrowing base" than a prior arrangement with lenders led by UBS Loan Finance LLC. The loan will be used to fund operations post-emergence and pay off any remaining debtor-in-possession financing obligations, according to the debtors.

Sussberg also stressed, however, that nothing has been finalized at this point and negotiations were ongoing with both potential lenders. The attorney added that the exit financing served as a building block for confirmation of Orchard Brands' reorganization plan, giving confidence to vendors and clients concerned about the debtors' finances post-emergence.

Judge Kevin Gross said at the hearing that the loan agreement "certainly enhances confirmation efforts."

Appleseed's Intermediate Holdings Inc. and numerous other Orchard Brands affiliates, filed for bankruptcy protection on Jan. 19, looking to slash more than $420 million in debt.

The company's Chapter 11 plan contemplates satisfying claims with a host of new loans and stock in the reorganized Orchard Brands, according to the disclosure statement.

First lien lenders would receive a pro rata share of a new $200 million first lien term loan and a new $43 million junior term loan, along with 95 percent of the common stock in the reorganized company, while second lien noteholders would get 5 percent of the new common stock, the statement says.

Any recovery for general unsecured creditors would come from a litigation trust, which was established to bring the official committee of unsecured creditors on board with the debtors and secured lenders in support of the plan.

In return for the committee's support, the debtors agreed to fund the trust with $2.5 million to investigate and prosecute potential claims against Orchard Brands' majority owner Golden Gate Private Equity Inc.

Also, $1 million of the trust funding could be distributed directly to unsecured creditors, depending on the needs of the trust and the outcome of the investigation.

A hearing to consider confirmation of the plan is set for April 14.

Orchard Brands markets its apparel mainly through catalogs and websites for men and women over the age of 55. The company, comprised of 17 different brands, has more than 40 million customers and racked up $881 million in net sales in 2010.

Orchard Brands is represented by Kirkland & Ellis LLP and Klehr Harrison Harvey Branzburg LLP.

The official committee of unsecured creditors is represented by Cooley LLP and Drinker Biddle & Reath LLP.

The case is In re: Appleseed's Intermediate Holdings LLC, case number 11-10160, in the U.S. Bankruptcy Court for the District of Delaware.