Charming Charlie Says Committee DIP Issues Are Resolved

Bankrupt women’s accessory retailer Charming Charlie Inc. filed a reply Tuesday in Delaware to objections from its official committee of unsecured creditors over the company’s proposed post-petition financing, saying it had resolved concerns over the payment of stub rent to landlords of its retail locations.
 
In the reply, Charming Charlie said the concerns of the committee relating to the payment of stub rent to landlords from the debtor-in-possession funding package had been resolved by agreeing to pay rent obligations ahead of payments on the DIP term loan and the prepetition term loan.
 
The company said the timing of stub rent payments — proposed to be made when the debtor emerges from bankruptcy — was required due to Charming Charlie’s strained cash position, the relatively short time anticipated for the bankruptcy process to be completed and the productive negotiations that are ongoing with landlords over rent deferrals.
 
Numerous landlords have objected to provisions in the DIP package as well as lease rejection procedures proposed by the debtor, saying the stub rent should be paid as far in advance of the Chapter 11 plan effective date as possible. The landlords cite the company’s performance, which has outpaced projections, since filing for bankruptcy as a reason to make the rent payments early.
 
Charming Charlie said that if the resolution with the committee over stub rent doesn’t placate the landlords, the rent payments shouldn’t be made early because that higher-than-anticipated performance doesn’t necessarily convert into a bigger cash flow for the debtor.
 
The company said its performance since filing for bankruptcy, though better than projected, is balanced out by its prepetition underperformance, the reply said. Charming Charlie also said the increased sales have reduced the retailer’s available inventory for other periods included in its DIP budget, which could lead to underperformance in typically more lucrative times.
 
“Therefore, when viewed holistically, the debtors are not outperforming the DIP budget at a level sufficient to repay the stub rent in advance of the proposed effective date,” the reply said.
 
The debtor also said the landlords are not being burdened any more than other creditors of the company and that without DIP financing, its reorganization efforts are doomed as there will be no money to fund operations while it pursues is restructuring strategy.
 
“Failure to gain access to the DIP funding… will destroy the debtors’ chances of achieving this goal and is not in the best interest of these estates or any stakeholders,” the reply said.
 
Representatives for Charming Charlie could not immediately be reached for comment Tuesday.
 
The company 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.
 
The company received interim approval at its first-day hearing for a post-petition financing to free up new cash so it could restock its stores, as it came to court with just $700,000 in available cash.
 
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 & Ellis LLP, representing Charming Charlie.
 
The landlords are represented by J. Cory Falgowski, Joe A. Joseph and Regan C. Loper of Burr & Forman LLP.
 
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.

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