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Bankruptcy Judge Approves Ann Taylor Sale to Sycamore

Ascena Retail Group on Tuesday got the nod from a bankruptcy court to sell its remaining retail nameplates to Sycamore Partners for a deal that includes $540 million in cash.

The total deal, which is expected to close next week, is valued at an estimated $1 billion. Bankruptcy Judge Kevin Huennekens in Richmond, Va., described the “pretty marvelous” transaction as “wonderful for the [store] employees.”

The deal allows for Ascena’s remaining brands—Ann Taylor, Loft, Lane Bryant and Lou & Grey—to continue operations as a going concern, and in the process keep thousands of Americans employed. The asset purchase agreement inked last month includes a promise by the private equity firm to keep a significant number of stores open. Estimates are that Sycamore would keep around 900 stores open and operating with the associates staffing those locations.

Ascena filed its Chapter 11 petition in July. At the time, the company shuttered 1,600 doors to shrink its fleet down to 1,200 locations. During its tour of bankruptcy court, Ascena has sold its plus-size chain Catherines to FullBeauty Brands Operations LLC for $40.8 million and the tween and juniors chain Justice to private equity firm Bluestar Alliance for $90 million. Both Catherines and Justice will continue to sell apparel, but as online-only operations.

Proceeds from the sale to Sycamore will be used to pay off the bankrupt firm’s debtor-in-possession lender, and for distributions to its term loan lender. Ascena also will place funds in a reserve account to address the usual claims.

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The court also rejected an objection to the deal from the Office of the U.S. Trustee, the administrative arm of the federal government’s Department of Justice, which keeps tabs on bankruptcies to make sure the administration of cases meet the requirements and procedures under the U.S. Bankruptcy Code.

In the Ascena case, the objection was centered on the lack of notice to creditors regarding the quick sale, and that it would be completed without a court auction. Court auctions are meant to allow for other bidders to step up to the plate in the hopes of bringing in better offers, which in turn could provide additional returns to creditors. But the Sycamore agreement included a termination fee of $16.2 million, as well as a $5.4 million fee to cover its due diligence expenses, both of which were objected to by the Trustee as “excessive.” Sycamore also provided DIP financing to Ascena in its bankruptcy.

Judge Huennekens noted that the assets had already been marketed to potential buyers since the bankruptcy, and that the deal also has other benefits beyond keeping the stores open and store associates employed, like mall landlords having “operating entities” at their shopping centers.