Tuesday Morning’s ABL agent objects to DIP loan, store-closing plans

By Sarah Lizee

Olympia, Wash., Feb. 15 – Tuesday Morning, Inc.’s motions seeking approval of debtor-in-possession financing and store-closing procedures drew objections Wednesday from asset-based lending agent Wells Fargo Bank, NA, according to documents filed with the U.S. Bankruptcy Court for the Northern District of Texas.

Prior to the petition date, the debtors received two competing DIP financing proposals. One was from prepetition ABL lenders led by Wells Fargo, which required immediately launching a company-wide liquidation. The facility would have included a $40 million revolver, with $15 million available for letters of credit, and a $10.94 million FILO B loan. Interest would have been the base rate plus 525 basis points per annum on the revolver, and the base rate plus 1,300 bps per annum on the FILO loan.

The other offer was from Invictus Global Management, LLC, which provides the debtors with an opportunity to reorganize or pursue a bankruptcy sale process. The company is now seeking approval of the $51.5 million of DIP financing via Invictus, which bears interest at 12.75% per annum. The facility also provides for a rollup of prepetition term loans and convertible notes. The rolled-up loans would bear interest at 10% per annum.

In its objection to the Invictus DIP financing, Wells Fargo said the ABL lenders’ DIP financing would have satisfied the debtors’ secured debt, and, based on the budget approved by the debtors’ advisers, kept the debtors administratively solvent and provided a potential distribution to unsecured creditors.

Wells Fargo said the debtors instead chose a “risky proposal” advanced by one or more of their prepetition term loan lenders, lost their longstanding bankruptcy counsel who resigned abruptly on the eve of bankruptcy, fired their financial adviser with no replacement, ceased store closing sales, and terminated their liquidation consultant.

“The term DIP proposal, not proposed or approved by any financial advisor, sets the stage for protracted litigation between the DIP lenders and prepetition ABL lenders and adds substantial additional expenses that were not contemplated by the ABL DIP proposal and related budget that the special committee previously approved,” Wells Fargo said in its objection.

The ABL agent said the Invictus financing doesn’t refinance the ABL debt as the DIP motion purports, and instead leaves multiple components of the prepetition ABL lenders’ claim unpaid and shifts onto the ABL lenders the risk of non-payment.

Wells Fargo also said the term DIP proposal won’t be funded without violating the terms of subordination agreements that govern the relationship among the prepetition ABL lenders and subordinated creditors.

“Once the debtors are subject to an insolvency proceeding, the subordinated creditors cannot support, provide or consent to any DIP financing that is not supported by the prepetition ABL creditors,” Wells Fargo stated.

The ABL agent also said that the premise of the DIP proposal and store-closing plan is faulty because the debtors have been seeking a buyer, both with and without the assistance of an investment banker, since at least September 2022, with no success.

Tuesday Morning is a discount off-price retailer based in Dallas. The company began its second Chapter 11 bankruptcy case on Feb. 14 under case number 23-90001. The previous case started on May 27, 2020 under case number 20-31476. The company exited that round of bankruptcy on Dec. 31, 2020.

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