Sequential Brands files for Chapter 11 protection

November 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

November 2021 Issue

Sequential Brands Group, Inc and a number of its wholly-owned subsidiaries have commenced voluntary Chapter 11 proceedings in the US Bankruptcy Court for the District of Delaware.

Sequential, which owns Jessica Simpson, Joe’s Jeans, And1, Avia and other brands, will be obtaining $150m in debtor-in-possession (DIP) financing from its existing Term B lenders. The company expects this new financing, together with cash generated from ongoing operations, to provide ample liquidity to support its operations during the sale process. The proposed transactions will be implemented pursuant to the terms of a restructuring support agreement reached between the company and its Term B lenders.

Sequential has experienced a period of turmoil in recent years. Since last October, the company lost a chief executive, a senior vice president of finance and an executive chairman. After one of its lenders, Wilmington Trust, gained the right to appoint a majority of Sequential Brands’ board members, four board members resigned. Financially the company has also struggled. Sequential’s revenue last year fell by nearly 12 percent while operating losses hit $45.1m. Accordingly, the company found it increasingly difficult to pay down its debt pile, which stood at more than $450m at the end of 2020.

Trying to stay afloat and pay back lenders, Sequential has sold off a number of its brands. In August, the company announced it had sold the Ellen Tracy and Caribbean Joe brand assets for a combined $20m, roughly a third of what it paid for them in 2013. It also sold the Heeling Sports brand for $11m to BBC International. The family of singer Jessica Simpson has also reportedly offered to purchase the Jessica Simpson brand – one of the largest in Sequential’s portfolio, encompassing footwear, apparel, fragrance, fashion accessories, maternity apparel, girls’ clothing, accessories and a home line – for around $65m.

The company said that, as a result of the significant debt on its corporate balance sheet, it was no longer able to operate its portfolio of brands. Sequential believes that each of its brands is well-positioned for profitability under the stewardship of new owners.

Upon filing for bankruptcy, Sequential landed a stalking horse bid from Galaxy Universal for its Active Division assets, as well as from Centric Brands for the Joe’s Jeans brand. As part of its restructuring agreement with lenders, Sequential is looking to hold an auction and close on a sale of its assets within 75 days after filing.

According to Lorraine DiSanto, chief financial officer at Sequential, the company had been exploring possible asset sales for nearly two years prior to the Chapter 11 filing. In December 2020, the company announced that its board of directors had relaunched a “broad exploration of strategic alternatives, including the sale of the company or the divestiture of one or more existing brands”.

Sequential launched a broader sale process in early March 2020, reaching out to more than 90 parties and signing non-disclosure agreements with around 30 prospective buyers. But the chaos caused by the coronavirus (COVID-19) pandemic significantly derailed those plans, Ms DiSanto said in court papers.

“In late 2020 and early 2021, the company, with assistance and advice from Stifel, engaged in a broad marketing process for the sale of the company or the divestiture of one or more existing brands, while also evaluating all other potential transactions, including raising new debt and/or equity financing. As the Company worked through this marketing process with numerous parties, it continued to be in default of certain covenants under the Wilmington Credit Agreement and, in April and June of 2021, defaulted under certain covenants under its first lien credit agreement, the BoA Credit Agreement necessitating that the company enter into multiple waiver agreements,” Ms DiSanto added.

Richard Summerfield