Forever 21 Bid Gets Approval, But Vendors Bemoan Lack of Payment

(Bloomberg) -- U.S. Bankruptcy Judge Kevin Gross gave Forever 21 the go-ahead on a tentative plan to sell itself to its biggest landlords -- a deal that suppliers say will leave them bearing the brunt of the losses.

The stalking-horse bid, which sets a floor for any further offers, would see Simon Property Group Inc., Brookfield Property Partners LP and Authentic Brands Group LLC pay $81 million in cash for the fast-fashion retailer and assume a chunk of its debts.

Counting the assumed liabilities, which include letters of credit, costs to cure defaults and trade debts, the deal is worth $290 million, Tyler Cowan of Lazard Ltd. said during a hearing in Delaware Tuesday. Lazard is serving as the retailer’s investment banker.

This would still leave more than $100 million of vendor claims unpaid, said Jeffrey Waxman of Morris James LLP, which represents a group of suppliers.

Pain Points

“Let’s be clear about about who is really feeling the pain: the vendors who are owed hundreds of millions of dollars,” Waxman said in the hearing. “We’re talking about vendors not being able to pay their employees because they’re out hundreds of millions of dollars.”

When the retailer filed bankruptcy in September, it owed suppliers $347 million, according to a court filing by vendors.

The proposed sale is the best currently available for Forever 21, though additional potential buyers are still looking at the company, Cowan said. The company has been in default of its bankruptcy loan since before the start of this year, he said.

Simon Property, one of the mall owners bidding for the company, told analysts during an earnings call on Tuesday that its successful rescue of the Aeropostale chain in 2016 inspires confidence that Simon could do the same for Forever 21.

Money-Maker

“We do think there is a business there, but it’s got to be turned around,” Chief Executive Officer David Simon said. “We’ve got our work ahead of us, but if we are successful in turning it around, we will make money at F21.”

Gross said Tuesday he’d approve the consortium’s bid, but the sale isn’t final. Additional offers could come in before a hearing to approve the sale scheduled for next week.

In one concession to the vendors, the consortium agreed to reduce the break-up fee they’d get if their deal doesn’t go through, cutting it to $3.1 million from $4.65 million. The vendors complained that the fee would discourage higher bidders, potentially depriving them of more compensation, and Gross said the original amount was “simply too high.”

The case is Forever 21 Inc., 19-12122, District of Delaware

--With assistance from Nic Querolo and Steven Church.

To contact the reporter on this story: Jeremy Hill in New York at jhill273@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Dan Wilchins

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