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Charming Charlie's DIP Plans Get Interim OK In Delaware

Bankrupt women's accessories retailer Charming Charlie Holdings Inc. received interim approval Wednesday in Delaware for a two-part post-petition financing plan that will see $10 million of new money injected into the company to help it maintain operations at core stores going forward.

During a first-day hearing in Wilmington, debtor attorney Joshua A. Sussberg of Kirkland & Ellis LLP said the company was in dire need of cash to keep inventory flowing into its stores in order to give it a chance to successfully reorganize and survive its bankruptcy case.

"There's a story here. There's a realistic opportunity for this company to rehabilitate itself and continue to exist for many years to come," Sussberg said. "But this is a company that has been flying in a plane way too close to the ground."

Charming Charlie has about $700,000 in cash available, which has hampered its ability to pay vendors and keep its shelves stocked during the lucrative holiday shopping season. Without post-petition financing, the company would not be able to restock and its operations likely won't survive, he said.

But with the funding, inventory can begin coming in as soon as Thursday, Sussberg told the court.

Debtor attorney Aparna Yenamandra, also of Kirkland & Ellis, said the company is contemplating two debtor-in-possession financing packages that will roll up existing debt while providing $10 million in new money on an interim basis.

The first package is a new $35 million asset-based loan that will replace a prepetition ABL with about $22 million outstanding. The facility will roll up the $22 million of prepetition ABL debt.

The second prong is a $60 million term loan that will provide a total of $20 million in new money when it is approved on a final basis, with $10 million becoming available immediately. Nothing will be rolled up from the term loan, Yenamandra said.

The money will be used to implement three initiatives designed to improve the cash flow and performance of Charming Charlie's stores, she said. First, the debtor will focus on streamlining its vendor and inventory practices by consolidating its product suppliers into core areas. The company will also seek to shutter underperforming stores, and has already begun closing 97 of its locations.

Charming Charlie is engaged in discussions with landlords at its planned surviving stores to negotiate rent and lease concessions.

Yenamandra said the debtor conducted a marketing process for the DIP facilities before coming to court and received one proposal that didn't work out, because it would have created issues with lenders over the priming of liens.

"It became clear the path out was through our existing lenders," she said.

Bank of America NA is the lending agent under the asset-based loan facilities and Wilmington Savings Trust is the agent under the term loans, according to court documents. The prepetition ABL was first provided in 2015 in the amount of $55 million and currently has $20 million in principal outstanding. The term loan was agreed to in 2013 and currently has about $132 million in principal and interest outstanding.

Sussberg said a proposed plan contemplates a deleveraging of the company's debt by $100 million through the issuance of the new lending facilities and the conversion of the prepetition term loan debt into equity in the reorganized company. About $85 million of debt will remain in the form of preferred equity issued during a 2013 recapitalization of the company. The preferred interests are mostly held by private equity firm TSG Consumer Partners.

U.S. Bankruptcy Judge Christopher S. Sontchi approved the DIP facilities on an interim basis and gave the nod for a slate of typical first-day requests for relief: an employee wage and benefit motion, utilities motion and tax motion.

The court also approved a request from Charming Charlie to conduct the closing of the 97 underperforming stores that began last month and are expected to run through the end of the year, according to Yenamandra.

The company filed for Chapter 11 protection Monday, citing the ongoing "retail apocalypse" facing brick-and-mortar stores in the face of increasing competition from online retailers. It entered bankruptcy with about $154 million in secured debt in the form of the ABL and term loans.

It came to court with a restructuring support agreement with its equity holders.

The company was formed in 2004 by Charlie Chanaratsopon and grew to more than 300 locations by 2013, with another 90 since the recapitalization transactions that year, according to Sussberg.

It focuses on women's jewelry and accessories, targeting customers between the ages of 35 and 55, and organizes its stores based on a 26-color palette.

Charming Charlie is represented by Domenic E. Pacitti, Michael W. Yurkewicz and Morton Branzburg of Klehr Harrison Harvey Branzburg LLP and Joshua A. Sussberg, Christopher T. Greco, Aparna Yenamandra and James H.M. Sprayregen of Kirkland & Ellis LLP.

The case is In re: Charming Charlie Holdings Inc. et al., case number 1:17-bk-12906, in the U.S. Bankruptcy Court for the District of Delaware.