Karmaloop committee objects to sale, DIP loan as part of lender scheme

By Kali Hays

New York, April 13 – Karmaloop, Inc.’s official committee of unsecured creditors objected to proposed bid procedures related to the sale of substantially all company assets and $30.87 million of proposed debtor-in-possession financing, according to separate Monday filings with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Karmaloop’s lender agent ComVest Capital II, LP is the stalking horse bidder for the sale with a $13 million credit bid, along with other consideration, including the assumption of liabilities and payment of cure amounts.

Competing bids are due by 5 p.m. ET on May 13. An auction will be held on May 19, if needed.

The committee said that the benefits of such an abbreviated sale process have not been provided by Karmaloop and that the company has failed to test market interest in its intellectual property assets, which is “purportedly” Karmaloop’s most valuable asset.

According to an objection, the committee claims that the bid procedures demonstrate ComVest’s “true motive,” which is to own Karmaloop’s “most valuable assets cheaply in a quick loan to own scenario.”

ComVest is also the company’s DIP lender, providing the full $30.87 million in financing to supply Karmaloop with working capital and to repay pre-bankruptcy loan obligations, including those to ComVest.

However, the committee objected to the loan saying “the DIP facility creates a fast-moving process that makes it nearly impossible for potential bidders to participate.”

The committee also claims that it has been “completely excluded” from the sale and financing processes, that “potential bidders are not being notified” of the asset sale and that the DIP facility includes “exorbitant fees and interest” while only providing $3 million in new money.

“The lenders not only get to artificially increase their bid for the debtors’ assets, but also have the opportunity to further chill bidding by seeking payment of these fees from anyone seeking to outbid the lenders at auction,” an objection stated.

The committee asked that the court deny approval of the bid procedures and the proposed DIP financing, but if the court does allow an auction to take place, it asked that none of Karmaloop’s intellectual property or causes of action be included in the sale.

A hearing is set for April 15.

Karmaloop, a Boston-based cross-platform digital commerce and media property company specializing in the sale of global streetwear fashion and culture, filed for bankruptcy on March 24. The Chapter 11 case number is 15-10635.

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