UPDATE: April 5, 2021: A federal bankruptcy judge approved a financing deal that injected $75 million of emergency capital into Tailored Brands and provides $3 million-plus to buy out a minority stake in the company held by unsecured creditors who received shares in the retailer's Chapter 11 reorganization.
After attorneys for the minority shareholder group suggested the deal may have been designed to push them out, Judge Marvin Isgur said that there was "zero evidence of that," according to audio of a hearing on Thursday.
- Minority shareholders of Tailored Brands are getting a chance to investigate an emergency loan deal that some say would massively shortchange them.
- At issue are the terms and circumstances around a $75 million lifeline from an existing lender and largest stockholder of Tailored Brands. The deal gives the lender, Silver Point Capital, convertible notes that would dilute the stocks' worth for the minority shareholders, a group of unsecured creditors given stock in the retailer's reorganization last year.
- Silver Point has offered a buyout of the stock, which multiple shareholders said amounted to less than half a cent on the dollar for their claims. At a Monday hearing, a federal bankruptcy judge gave stakeholders two weeks to investigate the deal, according to court audio.
One of the key issues raised by those challenging the loan to Tailored Brands, which owns the Men's Wearhouse and Jos. A. Bank brands among others, is the precise financial state of the menswear retailer that has taken a beating amid the COVID-19 pandemic.
A trustee of the minority shareholders issued a notice in February that Tailored Brands had suffered "unanticipated declines in its business" and faced possible default on its debt, which could trigger another Chapter 11 filing after last year's bankruptcy and potentially even liquidation.
Further, the trustee said in the notice that the retailer had "severely underperformed against the financial projections" laid out in its Chapter 11 reorganization plan.
But one of the shareholders, Venkatesh Reddy of Zeo Capital Advisors, noted in a letter to the court earlier this month that Tailored Brands made statements to media that the company was beating its own estimates. A Tailored Brand spokesperson told Retail Dive and other outlets in March that the company had "exceeded the forecasts shared with prospective investors in every week of the past two-and-a-half months."
Shareholders have raised questions about the apparent contradiction in projections tied to Tailored Brands' bankruptcy plan that the company was failing to meet — which could trigger default — and the estimates shared with investors that Tailored Brands said it was exceeding.
"For the Reorganized Debtor to have outperformed lowered forecasts for 2½ months, those forecasts would date back to second week of December at the latest," Reddy said in the letter. "This is less than one month after confirmation and less than two weeks after the plan effective date. It is unreasonable to believe that a new forecast was first needed or created in that timeframe. Rather, any such forecast was likely developed or in an advanced stage prior to confirmation."
At a hearing Monday, Kirkland & Ellis attorney Joshua Sussberg, who represents Tailored, called the new loan a "lifeline" that "got us through a short-term liquidity crunch," according to an audio recording of the hearing. Sussberg also said that "absolutely nothing nefarious" went on in the loan negotiations.
Zeo and other shareholders under the trust have also objected to payments to the trustee and company deliberations at Tailored Brands around the Silver Point loan that took place without the trustee's participation, which they say is required by Tailored's reorganization plan.
With more questions, the bankruptcy judge overseeing the Tailored Brands case, Marvin Isgur of Texas' Southern District, gave the trust shareholders time to ask questions of Tailored Brands and come back with more specific objections, if they had any. "I don't really smell a rat here," Isgur said in the hearing. "We had a business that ran into problems." The judge added, "We need to give people a fair opportunity to investigate."