Harry & David files bankruptcy; noteholders agree to restructuring

By Caroline Salls

Pittsburgh, March 28 - Harry & David Holdings, Inc. made a pre-packaged Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the District of Delaware to implement an agreement reached with holders of roughly 81% of its senior notes on the terms of a reorganization that will eliminate substantial debt and provide equity financing to restructure the company's balance sheet.

According to a company news release, Harry & David plans to use the Chapter 11 process to facilitate a financial and operational restructuring designed to restore it to long-term financial health while continuing to operate in the normal course of business.

As a part of the pre-arranged restructuring, the company has entered into an agreement with some of the senior noteholders. Supporting noteholders agreed to vote in favor of the company's pre-packaged plan of reorganization and exchange their notes for common equity.

In addition, the supporting noteholders have agreed to backstop a $55 million rights offering that will provide Harry & David with the necessary equity financing to emerge from Chapter 11. Other noteholders and pre-bankruptcy creditors will be offered the opportunity to participate in the rights offering.

The company said successful implementation of the proposed plan would result in the full conversion into equity of its $198 million of senior notes, as well as a significant amount of its pre-bankruptcy general unsecured obligations.

Restructuring terms

According to an 8-K filed with the Securities and Exchange Commission, the terms of the proposed restructuring include:

• Shares of the company's existing common stock would be cancelled without any distribution for the stockholders;

• Each holder of the $198.4 million notes outstanding would receive a share of 16.7% of the new common stock of the reorganized company, plus subscription rights to acquire additional shares under specified circumstances;

• Holders of general unsecured claims would receive, at the reorganized company's option, either their share of 16.7% of the new common stock and subscription rights to acquire more shares, cash equal to 75% of the plan value of their portion of the general unsecured creditor shares or one or more 6% seven-year unsecured promissory notes equal to the value of the shares they would have otherwise received;

• The reorganized company would issue up to 73.3% of the shares of new common stock through the exercise of subscription rights granted to eligible noteholders and unsecured creditors and would raise $55 million through the exercise of subscription rights or through a backstop commitment provided by the noteholders;

• The backstop providers would receive a total of 5% of the reorganized company's new common stock in exchange for their backstop obligations;

• Each backstop provider would have the option to deliver amounts required to be paid under its backstop commitment by either paying cash or agreeing to exchange a principal amount of the a debtor-in-possession notes facility held by the backstop party; and

Up to 10% of the shares of the reorganized company's new common stock would be reserved for issuance to management in connection with a management incentive plan.

DIP financing

In conjunction with its filing, Harry & David is seeking court approval to enter into a $100 million one-year first-lien DIP revolving credit facility, which will be provided by the company's existing secured lenders, and a $55 million one-year second-lien DIP term loan, which will be provided by the senior noteholders.

UBS Stamford Branch is the administrative agent on the first-lien DIP loan, according to the 8-K.

Interest on the $100 million ABL facility will be either Libor plus 375 basis points or Base rate plus 275 bps, at the company's option.

Interest on the $55 million DIP notes facility will be either Libor plus 1,150 bps with a 1.5% Libor floor or Base rate plus 925 bps with a 3.75% floor.

The proposed DIP financing will help support Harry & David's reorganization plans and enable normal post-bankruptcy operation of its business, including timely payment of employee wages, benefits and other obligations.

In addition, the company has secured a commitment from its current lenders to provide up to $100 million in exit financing to facilitate the plan of reorganization.

"We believe that entering into this agreement provides the best opportunity for Harry & David to restructure its balance sheet on an expedited basis, strengthen its operations and create long-term value, while continuing to provide customers with the highest quality products and service," chief restructuring officer and interim chief executive officer Kay Hong said in the release.

"Harry & David is an iconic brand, and we believe this is an important first step to position the business for long-term profitable growth."

Debt details

According to court documents, Harry & David had $304 million in assets and $361 million in debt at Dec. 25.

The company's largest unsecured creditors include:

• Indenture trustee Wells Fargo Bank of New York, with a $140.19 million senior fixed-rate notes claim and a $58.17 million floating-rate notes claim;

• Harry & David Pension Plan, based in Medford, Ore., with a $27.4 million pension liability claim;

• Convergys CMG of Cincinnati, with a $2.22 million trade debt claim;

• R.R. Donnelley Receivables of Chicago, with a $2.17 million trade debt claim; and

• FedEx, based in Memphis, Tenn., with a $1.18 million trade debt claim.

The company's largest shareholder is U.S. Equity Partners II (U.S. Parallel), LP, holding 45.9529% of its equity.

Harry & David's investment banker is Rothschild Inc., its legal adviser is Jones Day, and its financial adviser is Alvarez & Marsal.

Harry and David is a Medford, Ore.-based gourmet food and fruit gifts purveyor. The Chapter 11 case number is 11-10884.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.