The court endorsed the plan after hearing that the apparel and accessories licensor, designer, sourcing network and seller had struck a nearly $6 million deal to end objections and legal claims from its unsecured creditors.
Centric Brands, which owns the Zac Posen, Hudson, Swims, Robert Graham and Avirex brands and holds licenses for more than 100 labels including Calvin Klein, Jessica Simpson, Kate Spade, Nautica, Timberland, Tommy Hilfiger and Under Armour, filed for Chapter 11 protection in May in the midst of the Covid-19 pandemic, which struck apparel sales hard when non-essential stores temporarily shuttered across the globe. As part of the bankruptcy, Centric Brands ended its licensing agreements with BCBG Max Azria and BCBGeneration, which were later scooped up by Marquee Brands.
Centric Brands’ wholesale accounts were significantly disrupted due to the pandemic, particularly since many of the factories that make its licensed clothing were shut down as well, according to CEO Jason Rabin.
“Today’s announcement represents a critical moment in our journey to emerge as an even stronger company, poised for long-term growth,” Rabin said in a statement. “I am truly grateful to our dedicated employees for their hard work throughout this process and the Covid-19 pandemic. I’m also appreciative of the continued support of our brand licensors, retailers, sourcing network and lenders, which has allowed us to reach this milestone.”
Upon filing for bankruptcy after being saddled with $1.7 billion in debt, Centric initially struck a deal with its senior lenders to swap $700 million in first- and second-lien debt for full equity in the reorganized company. But the licensor’s unsecured creditor’s committee objected to the plan, arguing that it would pay the senior lenders, which include Blackstone, Ares Management Corporation and HPS Investment Partners, more than they were owed. Additionally, the committee noted that the plan would provide unsecured creditors with only $1 million in recoveries, which amounted to less than 1 percent of their claims.
Centric representatives confirmed to the bankruptcy court on Thursday that they had reached a deal to increase the recovery for unsecured creditors and previous excluded noteholders to $5 million. This revised plan was approved by all but one of the unsecured creditors, counsel for Centric said. The unsecured creditors will receive an additional $900,000, with $875,000 of that provided by Tengram Capital Partners.
Now, Centric intends to emerge from bankruptcy with a recapitalized balance sheet, new financing facilities, significantly reduced debt and interest payments, and the full support of its lenders. Additionally, the company expects to secure new exit financing, as well as new revolving and term loan facilities from its current secured lenders.
At the time of its filing, Centric Brands listed its assets in the range of $1 billion to $10 billion, about the same as its estimated liabilities.
Centric Brands, which has operated as a public company since 1990 when it was known as Innovo Group Inc., expects to emerge as a private company, under the ownership of its current lenders led by Blackstone, Ares and HPS.
Blackstone will exchange its second-lien debt for equity interests in the reorganized company. Existing senior lenders Ares and HPS will retain their senior loan positions and will receive equity interests in the reorganized company.
The company has gone through numerous iterations over the years as it has expanded and contracted, changing its name from Innovo Group to Joe’s Jeans Inc. in 2007, and then again to Differential Brands Group Inc. in 2016 upon the acquisition of the Robert Graham brand. When Differential acquired a significant portion of Li & Fung’s Global Brands Group Holding Ltd. for $1.2 billion in 2018, the company once again rebranded to Centric Brands and installed Rabin as CEO.