Centric Brands announces pre-packaged Chapter 11 bankruptcy filing

By Caroline Salls

Pittsburgh, May 18 – Centric Brands Inc. made a pre-packaged Chapter 11 bankruptcy filing on Monday in the U.S. Bankruptcy Court for the Southern District of New York as part of a restructuring support agreement reached with substantially all of its secured lenders to recapitalize the company, provide $435 million in debtor-in-possession financing and allow Centric to operate without interruption throughout the restructuring process.

According to a company news release, the secured lenders who are party to the agreement are led by funds managed by Blackstone, Ares Management Corp. and HPS Investment Partners.

Centric said the agreement provides for a timely emergence from the process with a plan to substantially reduce its funded second-lien debt by about $700 million, thereby positioning the business for future growth and success.

The company said it intends to continue operating in the ordinary course, and the DIP financing will enable it to continue to meet its financial obligations throughout this process to employees, licensors, suppliers and vendors.

The DIP financing will be comprised of a $160 million term loan, of which $120 will be available on an interim basis, and a $275 million revolving credit facility, of which $10 million will be available on an interim basis.

U.S. Bank NA is the agent for the one-year term loan, which will accrue interest at the Base rate plus 750 basis points. ACF FINCO I LP is the agent for the one-year revolver, which will accrue interest at the Base rate plus 550 bps.

Upon completion of the restructuring process, the company said it plans to emerge as a private company under the ownership of its current lenders.

“Today’s agreement marks the beginning of our next chapter as an even stronger company and builds upon our progress to date executing on our long-term strategy,” chief executive officer Jason Rabin said in the release.

“The current crisis has significantly impacted companies across all sectors. The pandemic disrupted many of our wholesale accounts’ ordering and constrained our cash flow.

“However, we are confident that with added flexibility in our capital structure, we will be well-positioned for long-term success during this period and beyond.”

Restructuring agreement

Under the restructuring agreement, Blackstone will exchange second-lien debt for equity interests in the reorganized company.

Existing senior lenders Ares and HPS will retain their senior loan positions and will receive equity interests in the reorganized company.

Existing common stock will be extinguished, and holders will receive no distribution.

For a majority of its operations, Centric said the Chapter 11 process will not impact its decision to reopen relevant locations.

“This financial restructuring process will allow us to optimize our operations while maintaining our valued, long-standing relationships with our business partners,” Rabin said in the release.

Debt details

According to court documents, Centric had $1,855,722,808 in total assets and $2,014,385,923 in total debt as of March 31.

The company’s largest unsecured creditors are Peter Kim, with a $9.79 million convertible note claim; Product Development Partners Ltd. of Hong Kong, with a $9.53 million trade claim; Caite International Ltd. of Taipei, with a $9.11 million trade claim; Jiangsu Guotai Guosheng Co. Ltd. of Jiangsu, China, with a $9.08 million trade claim; U.S. Customs and Border Protection, based in Washington, D.C., with an $8.79 million trade claim; Port Logistics Group of City of Industry, Calif., with a $6.91 million trade claim; Salesforce.com, Inc. of San Francisco, with a $5.36 million trade claim; Taieasy International Co., Ltd. of Taipei, with a $5.36 million trade claim; Angel Garment Ltd. of Kowloon, Hong Kong, with a $4.66 million trade claim; and Uni-Eastern Sportswear Mfg., Ltd. of Taipei, with a $4.38 million trade claim.

Ropes & Gray LLP, Dechert LLP, PJT Partners, Inc. and Alvarez & Marsal serve as legal, financial and restructuring advisers to Centric Brands.

New York-based Centric Brands is a lifestyle brand collective that designs, sources, markets and sells kids, men’s and women’s apparel, accessories beauty, and entertainment. The Chapter 11 case number is 20-22637.

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