AllSaints Gets U.S. Bankruptcy Court OK of U.K. Restructuring

June 30, 2020

Source: Yahoo Finance

AllSaints has received protection from creditors in the U.S. as it goes ahead with a plan to restructure its U.K.-based retail operation in the wake of the coronavirus pandemic.

The brand late Friday won U.S. bankruptcy court recognition of a Chapter 15 proceeding, in this case AllSaints’ recent Company Voluntary Agreement in the U.K., which is part of the country’s insolvency process for businesses. It is now protected from creditors, including landlords, in the U.S. as it works on a plan to restructure its retail operation. A CVA process is similar to that of a Chapter 11 bankruptcy proceeding in the U.S., but different in that it is seen as a preventive measure to complete insolvency. The main goal is negotiating with creditors on the repayment of outstanding debts.

In its CVA filing, AllSaints attributed its financial troubles to its “recent financial performance and impact from the COVID-19 pandemic.” If it is unable to stave off creditors and improve its cash position, the company said insolvency, or a failure of the business, would be the outcome.

While AllSaints owes an estimated 33.1 million pounds ($41.2 million at current exchange) to landlords, it last week told the court that it already has some new financing lined up. The brand only described the new backer as being the same entity that’s currently set to acquire the also bankrupt John Varvatos brand, which according to court documents for that proceeding is Lion Capital LLP, a British private equity firm.

Lion Capital is actually the owner of AllSaints, having acquired it in 2011, records show. Now, Lion affiliate Lion/Heaven UK II Ltd. is set to inject more money into the brand. The amount of new investment from Lion Capital will either be 15 million pounds or, in the likely event that it acquires John Varvaots out of bankruptcy, it will transfer those assets to AllSaints. Lion Capital claims the Varvatos assets have equity value of $100 million. 

But AllSaints is facing heavy debts. It received in 2017 a 60 million pound loan from Bank of America London, 48 million pounds of which is outstanding. Other liabilities include its unsecured creditor claims, including those of landlords, of 95.9 million pounds and claims of connected creditors (employees, manufacturers) of 34.7 million pounds. Overall assets are valued at 54.4 million pounds.

According to a court statement from lawyer Richard Dixon Fleming, who has been appointed to oversee the CVA, the company’s main assets are “inventory in its stores.”

The brand has 129 retail outposts in total, 35 of which are in the U.S., with another six in Canada. Those numbers are already down significantly from AllSaints previous operation of around 250 retail stores. The brand only expanded to the U.S. in 2009 and Asia in 2014. It was founded in 1994.

The main point of the insolvency proceeding appears to be in order to force landlords in the U.S. and U.K. into a sales-based rent model, wherein AllSaints will only pay rent based on a percentage of its monthly net sales. There has been talk among other brands with landlords of a desire for sales-based rent as nearly all retailers and brands stopped paying rent amid the coronavirus shutdown and none expect a return to normal sales levels this year.

When AllSaints filed its CVA last week, chief executive officer Peter Wood said he remains “confident in the long-term prospects for our brand.”

AllSaints has three tiers of landlords, which it wants to pay a percentage basis, either 20 percent, 16 percent or 10 percent, depending on the area, type of property and duration of the current lease. For those landlords that don’t agree to the new structure, those AllSaints stores will simply remain closed. There is extensive explanation regarding the process for lease termination in the brand’s CVA filings, and either AllSaints or a landlord can decide to terminate a lease, but no specified expectation of how many stores are thought likely to close outright.

AllSaints is also undergoing cost-cutting measures, mainly in the form of rent avoidance, but also in the furloughing of nearly all of its workforce totaling 670 people. The brand furloughed 80 percent of its workers in the U.K. and 75 percent in the U.S., while senior executives have taken an unspecified pay cut, accounting for total monthly cost savings of more than 4.1 million pounds. Still, it owes an estimated 731,486 pounds to workers in unpaid wages, with average claims of roughly 1,100 pounds.

The company did not say if or when it intends to bring workers back.