Lucky Brand has negotiated a two-pronged primary asset purchase agreement, also known as a “stalking horse” bid, to sell its operating assets to SPARC Group LLC (SPARC), a jointly owned entity of Authentic Brands Group (ABG) and mall owner Simon Property Group, and Lucky Brand’s intellectual property assets to ABG-Lucky LLC, a newly formed subsidiary of Authentic Brands. The all-assets bid includes $140.1 million in cash, $51.5 million in credit from vendors and a trade receivables adjustment. The proposed sale was revealed in the July 3 Lucky Brand Dungarees LLC announcement of its voluntary Chapter 11 bankruptcy protection filing.
Lucky Brand owes Simon Property Group $4.6 million in rent, according to court documents. The mall operator joined with Authentic Brands and mall owner Brookfield Property Partners to purchase Forever 21 out of bankruptcy in February 2020.
Lucky Brand also has negotiated a backup plan, a secondary asset purchase agreement, “which will only come into effect if the asset purchase agreement with SPARC terminates under certain circumstances.” If that situation were to occur, a newly formed company called ABG-Lucky LLC would acquire the Lucky Brand intellectual property (IP) and “certain other assets.” The IP deal is valued at $90 million and includes the option to purchase inventory related to the e-Commerce and wholesale businesses at an additional cost.
Although Lucky Brand has negotiated these initial agreements, the company said it would, with its advisors, “continue to explore potential sale transactions with other parties to achieve the highest or otherwise best offer for the company” during Chapter 11.
The manufacturer and retailer of vintage-inspired casual apparel plans to continue operating the majority of its stores, along with its e-Commerce site and wholesale business, during bankruptcy. However, Lucky Brand will immediately shutter 13 of its 210 locations, with additional closings possible.
“Lucky Brand has received new financing commitments from certain of its existing lenders that will provide sufficient liquidity to fund the business through the closing of the sale,” the company said. Lucky Brand has obtained $15.6 million in debtor-in-possession financing, according to bankruptcy filings.
“We have made many difficult decisions to preserve the Company’s viability during these unprecedented times,” said Matthew Kaness, Interim CEO and Executive Chairman in a statement. “After considering all options, the Board has determined that a Chapter 11 filing is the best course of action to optimize the operations and secure the brand’s long-term success.”
Lucky has employed Berkeley Research Group (BRG) as its restructuring advisor. “The company has been burdened by its substantial debt load and has faced many of the same pressures affecting U.S. retailers more generally,” wrote Mark Renzi, Managing Director at BRG Corporate Finance and Lucky’s Chief Restructuring Officer in a declaration supporting the Chapter 11 filing.