Specialty retailer Francesca’s Holding Corp will look to sell its assets in Chapter 11 backed by a USD 23.12m stalking horse bid from TerraMar Capital and USD 25m in debtor-in-possession (DIP) financing from term loan lender Tiger Finance.
Francesca’s is among dozens of retailers to seek Chapter 11 since the start of the coronavirus pandemic, which forced the temporary closure of stores throughout the country. Fellow filers include Le Tote, Lucky Brand Dungarees and JCPenney.
The DIP proposes to roll up all USD 13.5m of the company’s prepetition funded debt and sets a series of milestones for the case, including a 20 January deadline to close a sale. The TerraMar bid consists of USD 17m in cash and the assumption of USD 3.12m in gift card liabilities and USD 3m in payroll taxes.
Judge Brendan Shannon of the US Bankruptcy Court for the District of Delaware has scheduled a first day hearing for Tuesday, 8 December at 9:30am ET.
Houston, Texas-based Francesca’s is a specialty retailer selling apparel, jewelry, accessories and gifts.
The company has 558 stores in 45 states and the District of Columbia and generated USD 407.5m in net sales for the year ended 1 February 2020. Apparel made up 55.1% of those sales; jewelry, 24.6%; accessories, 11.8%; and gifts, 8.6%. Francesca’s had 4,540 employees at the petition date and hires another 800 to 900 annually as temporary seasonal workers.
The company went public in 2011 and continues to trade on NASDAQ as FRAN, closing trading on Friday (4 December) at USD 2.70 per share.
Francesca’s comes into Chapter 11 owing USD 13.5m in funded debt, consisting of USD 3.5m on a revolver due 2023 with JPMorgan Chase as agent and USD 10m on a term loan due 2022.
Francesca’s was pushed into Chapter 11 by the coronavirus pandemic, CEO Andrew Clarke said in his first day declaration, which forced it to close all of its stores from 25 March to 30 April. From the start of the pandemic to the petition date, Francesca’s has permanently closed 137 stores.
The company began reopening stores in May, but sales remain down, with a decrease of 17% for the quarter ended 31 October 2020 from the same period in 2019. The company has deferred USD 36.8m in rent obligations since April and deferred all capital expenditures, but those moves and other cost-saving measures, like product realignment, have not been enough to offset the decrease in sales, the CEO said.
Francesca’s brought on FTI Capital Advisors in April to pursue financing, but despite contacting 188 parties and entering into 58 non-disclosure agreements, it became clear that financing was unavailable. Francesca’s expanded its engagement with FTI to begin a restructuring and marketing process for a buyer and DIP financing. The company also brought on O’Melveny & Myers as legal counsel, as reported by Debtwire.
FTI contacted 139 potential buyers, entering into 37 NDA and obtaining three letters of intent for a stalking horse bid in a Chapter 11 case. Francesca’s ultimately selected TerraMar Capital as its stalking horse bid and Tiger Finance as its DIP lender.
The DIP and the sale
Los Angeles-based investment firm TerraMar Capital has agreed to serve as the stalking horse bidder for an auction with a USD 23.12m offer consisting of USD 17m in cash and the assumption of USD 3.12m in gift card liabilities and USD 3m in payroll taxes.
Tiger Finance, the company’s sole term loan lender, has agreed to fund the case with USD 25m in DIP financing that would roll up all of Francesca’s prepetition debt. The DIP sets milestones for the case, requiring the company to close a sale by 20 January.
The case is In re: Francesca’s Holdings Corp, number 20-13076, in the US Bankruptcy Court for the District of Delaware.