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Charming Charlie Gets Final DIP OK Over Landlord Concerns

Bankrupt women’s jewelry and accessory retailer Charming Charlie Inc. received final approval Thursday in Delaware for its post-petition financing packages after a judge overruled the objections some landlords made to the timing of rent payments.

During a hearing in Wilmington, Charming Charlie attorney Aparna Yenamandra of Kirkland & Ellis LLP told U.S. Bankruptcy Judge Christopher S. Sontchi the debtor had reached agreement with its lenders and the official committee of unsecured creditors on the debtor-in-possession financing, but that some landlords for its store locations were seeking early payment of stub rent.

“The DIP budget has always contemplated the stub rent gets paid at the end of the case, which we are hoping will be late March or early April,” Yenamandra said. “They want the stub rent paid now instead of waiting 10 to 12 weeks. We believe that both from a legal perspective and financial perspective, this argument isn’t supported.”

She said the DIP documents budget $4 million for stub rent incurred between the company’s Dec. 11 petition date and Dec. 31 at its nearly 400 stores; the DIP also provides for payment of rents for January, February and March in the ordinary course of business. The $4 million budget additionally doesn’t take into account numerous rent deferral agreements with certain landlords and other cost-saving deals worked out among the parties.

The landlords are financially protected by having that much money allocated for payment of the stub rent, Yenamandra noted.

“The stub rent amount in the DIP order represents the full gross amount,” she said. “If anything, it is an over-inclusive amount.”

The landlords also requested adequate assurance protections from the debtor, but Yenamandra said they aren’t entitled to them. Despite that, the prepetition and DIP lenders agreed to subordinate $150 million of their secured behind the stub rent obligations to ensure they are paid in a timely manner at the close of the Chapter 11 case.

None of the objecting landlords rose to address their concerns at the hearing, and Judge Sontchi overruled the remaining objections to the final DIP order.

“The stub rent issue is not insignificant,” Judge Sontchi said. “I believe landlords are taken care of in that the budget provides for taking care of that rent. It has, rather remarkably, been agreed to by the lenders that they’ll be subordinate to those landlords.”

He said he was pleased with the resolutions reached with the committee and lenders on the final DIP order.

Charming Charlie filed for Chapter 11 protection in December, 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 an asset-based loan and a term loan.

It came to court with a restructuring support agreement with its equity holders for a plan that involves the closing of 97 stores and the streamlining of its vendor network to reduce its size and complexity.

A hearing on the debtor’s plan disclosure statement is set for Feb. 13 before Judge Sontchi.

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 Joshua A. Sussberg of Kirkland, representing Charming Charlie.

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.