Relevant Document:
Agenda

At today’s second day hearing in the Nine West chapter 11 cases, Joseph Graham of Kirkland & Ellis, for the debtors, provided an update on the proposed bid procedures for the sale of the debtors’ Nine West and Bandolino assets. Graham said the bid deadline will be set for June 4 and an auction for June 8. A hearing to approve the sale is scheduled for June 18 at 11 a.m. ET. He also noted bid protections for the stalking horse bid submitted by Authentic Brands Group, including a $6 million breakup fee, or 3%, and an up to $750,000 expense reimbursement. Graham said the bid procedures order had been revised to provide consultation rights for a number of parties.

In response to a request from Judge Shelley Chapman for an update on “coming attractions,” Graham stated that the 2034 noteholder ad hoc group, which had threatened to file an examiner motion at the debtors’ first day hearing, “no longer exists.” According to Graham, certain noteholders sold out of their holdings after that hearing, and the debtors no longer expect an examiner motion to be filed.

With respect to the debtors’ motion for postpetition financing, Graham noted that the debtors have agreed to adjourn the hearing on that motion and that the parties in interest are in discussions about moving the deadline to object to that motion. Judge Chapman requested that the parties agree on a hearing date for that motion, potentially for the week of May 21 or the following week.

Daniel Golden of Akin Gump for the unsecured creditors committee then rose to give the court an update from the UCC’s perspective. Golden said the UCC was formed 18 days prior and that Akin Gump was selected as counsel on that day while the selection of a financial advisor was delayed. According to Golden’s remarks, the UCC represents two trade creditors, a landlord, the PBGC, the agent for the $300 million unsecured term loan, the indenture trustee for the unsecured notes due 2019 and “the largest holder of the $250 million of unsecured notes due 2034.”

Golden addressed the debtors’ proposed $50 million term loan DIP financing, asserting that the proposed DIP order contains “aggressive language” that is designed to inhibit the ability of the UCC to investigate and challenge the secured lenders’ prepetition claims. He also argued that the fees and payments coming from the DIP financing may be too expensive. According to Golden, the UCC may be trying to find an alternative DIP financing that would be junior to the secured term loan. He noted that the UCC has requested an extension of the deadline to object to the DIP.

Further, Golden previewed various issues with respect to the debtors’ 2014 leveraged buyout, led by Sycamore Partners, and the related carve-out transactions. He noted that the debtors’ RSA does not provide information as to the recovery for any unsecured creditor but does contemplate the complete resolution, settlement and release of causes of action relating to the LBO. He said that these claims, however, may be the only source of recovery for unsecured creditors.

Golden asserted that this is “troubling” because the debtors’ counsel Kirkland & Ellis has also been retained by Sycamore on other unrelated matters. He pointed out that the debtors’ two independent directors, who are investigating causes of action relating to the LBO, were suggested and put in place by Kirkland. Further troubling, he said, is the fact that the UCC is required to finish its investigation of LBO causes of action in three and a half months, even though the debtors’ independent directors have had seven months to investigate those claims and are still not finished.

The UCC’s solution for this problem, Golden said, is to place all of the potential litigation regarding the LBO and the carve-out transactions into a post-confirmation trust. With this solution, fiduciaries “who are not either directly or indirectly conflicted” can prosecute those potential causes of action, which will allow the other parties in the case to work on confirming a plan. Golden also acknowledged that debt from the LBO transaction is still in existence and that there needs to be analysis as to “any vulnerability about that debt and who should be able to participate in recovery.” Golden asserted that the UCC is uniquely qualified to perform that analysis because of the representation of different tranches of creditors on the UCC.

In response, Graham asserted that the DIP milestones are not tied solely to the RSA. He also said he does not believe this is the time to resolve the estate claims and that the RSA was clear that the debtors “had work to do” with respect to unsecured creditor recoveries.

Counsel from Proskauer Rose for Sycamore also made an appearance, asserting that the carve-out transactions were “publicly known” at the time of the 2014 LBO and were “fully transparent.”

The debtors’ other requested second day relief requests were granted on a consensual basis.