Gymboree, the children's clothier saddled with a billion dollars' worth of debt during a 2010 buyout by private equity firm Bain, received interim bankruptcy court approval Monday to access $35 million in new money and hundreds of millions of dollars in other converted debtor-in-possession financing as it seeks to regain solid footing.
U.S. Bankruptcy Judge Keith Phillips approved the proposal as well as debtor-in-possession financing that would convert hundreds of millions of dollars in prepetition debt to postpetition facilities and give Gymboree access to a decent slice of it, after the Chapter 11 filing on Sunday.
“The DIP facilities, including the roll-up loans, are hereby approved," Judge Phillips said in the order. "The debtors are expressly and immediately authorized and empowered to execute and deliver the DIP documents.”
Gymboree received permission to draw on some $274 million of asset-backed financing that has been converted from prepetition form. Up to $88 million can be used for letters of credit and up to $30 million for swingline loans; all will have senior superpriority status.
When it filed for bankruptcy days ago, Gymboree had $769 million outstanding under a term loan facility, as well as about $129 million in asset-secured debt outstanding and $171 million in unsecured notes outstanding, according to Lazard Frères & Co. LLC restructuring guru David Kurtz, who has been instrumental in orchestrating the company's path forward since he came on in January.
Kurtz undertook an intensive DIP marketing project and gave dataroom access to a dozen parties under nondisclosure agreements, but ultimately received few bites from outsiders, he said.
“Lazard’s public association with recapitalization efforts generally leads to unsolicited inbound offers to provide DIP financing if the market supports third-party DIP financing. In this instance, very limited actual inbounds were received,” Kurtz noted, meaning that the best DIP offers came from financiers who already had relationships with Gymboree.
The retailer is looking to close up to 450 of its 1,300 stores and is in talks with landlords, Kurtz said.
Though the company blamed broad retail-industry headwinds for its financial troubles, including a marked downturn in foot traffic as consumers shift to online shopping, it was “debt-free" and "cash-rich” before 2010's Bain buyout, according to The New York Times.
Bain's accepted offer for the retailer was $1.8 billion; only $524 million of that came in the form of equity, according to Debtwire.
Gymboree says 66 percent of its $788 million term loan lenders have agreed to support the restructuring in hopes that the retailer can get out ahead of looming December debt maturities.
Kurtz also noted that the Chapter 11 filing was urgent given an imminent revolt by Gymboree's core supplier.
“During the course of the last several months, certain vendors, including the debtors’ largest agent of sourced product, Li & Fung (the agent through which the debtors source approximately 93 percent of their inventory), threatened to withdraw trade credit and suspend shipping inventory unless the debtors paid up front or provided further credit protection," Kurtz wrote. That issue has been resolved for the time being, he said.
The debtors are represented by James Sprayregen, Anup Sathy, Steven Serajeddini, Joshua Sussberg and Matthew Fagen of Kirkland & Ellis LLP and Michael Condyles, Peter Barrett and Jeremy Williams of Kutak Rock LLP.
The case is In re: The Gymboree Corp., case number 3:17-bk-32986, in the U.S. Bankruptcy Court for the Eastern District of Virginia.
REPRINTED WITH PERMISSION FROM THE JUNE 13, 2017 EDITION OF LAW360 © 2017 PORTFOLIO MEDIA INC. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED. WWW.LAW360.COM