Dow Jones & Company reported Wet Seal received initial approval from a bankruptcy judge January 20, 2015, to proceed with DIP financing from B. Riley, despite a last-minute offer from Versa Capital offering attractive financing terms.

Dow Jones also wrote that Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington, DE, said he was satisfied Wet Seal’s choice to continue with B. Riley was a sound business decision even though Versa had offered financing on better terms.

According to court documents filed January 19, 2015, Gregory L. Segall, chairman and CEO of Versa Capital Management, submitted a letter to The Wet Seal’s board of directors c/o the company’s president and CEO, Edmond Thomas, dated January 19, 2015, that states, among other points:

“With respect to the Plan Sponsorship Agreement:

  • On the Effective Date of the Plan, Versa will purchase 80% of the newly issued common stock in the Reorganized Company for $25 million in the form of (a) conversion of the principal amount of the DIP Financing into equity and (b) cash.
  • Versa will eliminate the $1,000,000 break-up fee and only require reimbursement of reasonable out-of-pocket expenses (including, without limitation, legal fees.”

    • The letter also said:

    “With respect to the DIP Term Loan:

  • The Applicable Rate will be reduced from 10.25% to 8.00%.
  • The Default Rate will be reduced to 12.25% to 10.00%.
  • The Commitment Fee will be reduced from 2.50% to 1.00% as follows: (a) upon interim approval of the DIP Term Loan, the Commitment Fee will be an amount equal to 1.00% of the amount of interim financing approved (e.g., 1.00% of $1,000,000), (b) upon final approval of the DIP Term Loan, the Commitment Fee will be an amount equal to 1.00% of the amount by which the additional financing approved, on a final basis (e.g., $14 million )exceeds the Availability Block then in effect. This would substantially reduce the Commitment Fee approved at the interim hearing and substantially reduce the overall Commitment Fee by $225,000.”

    Regarding the company’s decision to choose B. Riley, Dow Jones added The Wet Seal’s lawyer, Michael Tuchin of Klee, Tuchin, Bogdanoff & Stern, said the company preferred to continue working with B. Riley, which had engaged in a long due diligence process and is familiar with the company’s “warts,” while Versa has only had access to public information and hadn’t engaged in the same due diligence.

    To read the letter sumitted by Versa Capital Management, click here.

    Previously on abfjournal: B. Riley, Great American Provide Wet Seal DIP Financing, January 19, 2015

    To read the entire Dow Jones article, click here.