The Wet Seal specialty retailer announced it filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware on January 15, 2015. The company will continue to operate its business as debtors-in-possession under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the bankruptcy court.
In connection with the Chapter 11 cases, the company has negotiated a debtor in possession financing arrangement DIP and plan sponsorship agreement PSA with B. Riley Financial, the parent of B. Riley & Co and Great American Group and its affiliates and designees.
The DIP provides for a $20 million term loan facility, subject to certain limitations and conditions, including a $5 million availability block at closing, from B. Riley to be funded on an interim and final basis. This loan facility will provide availability to fund the company’s operations during the Chapter 11 cases, including to the company’s vendors and other purveyors of goods and services. The company also expects to continue to fund operations from cash on hand and cash generated during the cases. The DIP is subject to bankruptcy court approval and the satisfaction of specified closing conditions. The company also expects to continue to receive certain financial accommodations from its existing lender, Bank of America, including continued cash management services.
The PSA provides a comprehensive blueprint for the company’s emergence from Chapter 11 as a going concern pursuant to a plan of reorganization, under which B. Riley has agreed to provide funding and will receive a majority of the stock in the reorganized company at emergence. The PSA contains certain milestones and conditions, including Bankruptcy Court approval of the company’s assumption of the PSA. The transactions contemplated in the PSA, in turn, are subject to conditions and confirmation and effectiveness of the plan of reorganization.
In connection with the bankruptcy filing, the company is seeking customary authority from the bankruptcy court that will enable it to continue to operate and serve its customers. The requested approvals include requests for the authority to make wage and salary payments, continue various benefits for employees, and honor certain customer programs, such as gift cards and returns on merchandise purchased prior to the bankruptcy filing.
As of January 12, 2015 the company had approximately $31 million of cash on the balance sheet, including nearly $11 million of cash used to collateralize letters of credit. The additional financing from the DIP is expected to provide the company with an immediate source of additional funds. These funding sources are expected to enable Wet Seal to satisfy the customary obligations associated with the daily operation of its business, including the timely payment of employee wages and other obligations.
“We are pleased to provide financial assistance to The Wet Seal in its efforts to revive this iconic fashion retailer,” said Bryant Riley, Chairman, of B. Riley Financial. “Taking a collaborative approach, and tapping our vast array of financial services, we believe that we have developed a financial solution that should benefit all parties involved.”
Ed Thomas, CEO of The Wet Seal, stated, “After careful consideration, the board of directors unanimously concluded that filing for Chapter 11 was the appropriate course of action for the company. Overall, we continue to believe in The Wet Seal and remain committed to executing on the strategic steps that we already started. We are thrilled to be working with B. Riley and other constituencies toward the successful and prompt emergence of the company from Chapter 11.”
The company indicated that it expects to provide additional details with respect to the Chapter 11 filing as soon as they are available. The PSA provides that the Company will file and support a plan of reorganization that will not provide consideration to the holders of the Company’s common stock.