Company That Owns the Spiegel Brand Files for Chapter 11 Bankruptcy

Signature Styles (Spiegel, Newport News & Shape Fx Brands) Files for Chapter 11 With Deal to Sell All Assets

Signature Styles which operates a primarily internet/catalog retailer specializing in women’s apparel Spiegel, Newport News and Shape Fx brands, filed for chapter 11 bankruptcy June 6, 2011 in Delaware.  The company acquired Spiegel Brands, Inc., which were being sold in a foreclosure sale conducted by Dymus Funding Company, LLC.  Signature Styles was the only bidder for the assets and paid $21.7 million.

 $48.6 million of assets and liabilities of $87.6 million were listed in the schedules.  Secured debt is $14.6 million owed to Zohar II 2005-1 Limited and Zohar III, Limited, and $22.64 million owed under a term loan facility provided by Zohar III, Limited.  The obligations owing to the Zohar entities, which are investment funds managed by companies whose collateral manager is related to Patriarch Partners Agency Services, LLC,  are secured by liens on substantially all of the debtors’ assets.  The companies’ remaining debt consists of $9.8 million of trade debt, $23.2 million of obligations to customers for returns, credits and gift cards, and various other unsecured obligations.  The debtors’ equity is wholly-owned by Zohar III, Limited.

The debtors plan to use the chapter 11 cases to effectively liquidate most of their assets.  They’ve also petitioned for approval of bidding procedures to facilitate a quick sale and have received a stalking horse bid for the assets from a newly-created affiliate of the pre-petition lenders (i.e., the Zohar entities and Patriarch Partners).  Under the proposed stalking horse agreement, the consideration that the purchaser (Artemiss, LLC) would provide for the assets would consist primarily of solely the assumption of certain liabilities of the Signature Styles companies.  Specifically, the purchaser would assume the following liabilities:

Up to $30 million of outstanding DIP loan, pre-petition term loan and pre-petition revolver loan obligations.  These claims are all owed to affiliates of the proposed purchaser.
“All liabilities accruing or due to be performed from and after the closing under the Assumed Contracts, Assumed Leases and the Post-Petition Contracts” (all capitalized terms as defined in the sale agreement).
“All liabilities for employee compensation and certain employee benefits.”
“The liabilities and obligations of Sellers to retail customers for (i) merchandise returned to Sellers that was purchased on or after the Petition Date [June 6, 2011] to the extent not satisfied as of the Closing Date, (ii) outstanding merchandise ordered on or after the Petition Date [June 6, 2011] to the extent not satisfied as of the Closing Date and (iii) gift cards or gift certificates purchased on or after the Petition Date [June 6, 2011] to the extent not satisfied as of the Closing Date.”
“All liabilities under or in respect of any employee benefit or welfare plan.”
However, if the stalking horse bidder is not the winning bidder at auction, the agreements provide that the successful bidder would not be able to assume any portion of the outstanding DIP loan, pre-petition term loan and pre-petition revolver loan obligations, but would instead be required to pay those obligations in full.  In addition, the proposed agreement does provide some proposed relief for existing customers of the debtors (in other words, customers of Spiegel, Newport News and/or Shape Fx).  If it is the successful bidder, Artemiss would provide “merchandise credits under its loyalty award program for prior retail customers of [the debtors] in amounts, dollar-for-dollar, equal to (a) the amounts payable for returns of merchandise purchased prior to the Petition Date [June 6, 2011] and that are to be settled in cash by [the debtors] under [the debtors'] current [return] policy and that remain outstanding on the Petition Date, and (b) up to $10 million of the amount of any remaining balance of gift cards or gift certificates that were purchased by third parties prior to the Petition Date or that were issued or are to be issued for returns of merchandise purchased prior to the Petition Date in accordance with [the debtors' current return policy].”  The new loyalty credits would be good only for merchandise offered for retail sale by the purchaser and would expire as follows:
For merchandise return credits (subpart (a) above), on the first anniversary of the closing of the sale
For gift card credits (subpart (b) above), four months after the closing of the sale
According to a footnote in the debtors’ motion, they estimate that there are currently approximately $18.1 million in outstanding gift cards and gift certificates which would fall within the $10 million cap described in subpart (b) above.