Global Brands Group’s North American arm has filed for Chapter 11.
In papers filed in New York Southern District bankruptcy court on Thursday, GBG USA Inc. disclosed between $1 billion to $10 billion in assets and liabilities, and listed between 1,000 to 5,000 creditors, including landlords and brands including Kenneth Cole Productions Inc. and Authentic Brands Group among the top creditors. It owes Kenneth Cole some $6 million in unsecured trade debt and roughly $3.6 million to ABG, according to court filings.
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The company, which incorporates GBG’s North America wholesale business, entered the proceedings with plans for a sale of its GBG USA Aquatalia footwear brand and operations. As WWD reported today, Windsong Global LLC and Hilco Brands, which just purchased a majority stake in Earth Origins, owner of the trademark for Earth Shoes, is the stalking horse bidder for the Aquatalia footwear brand. The bid for $17.3 million was made through a company named WH AQ Holdings LLC, which will serve as the purchaser, while Hilco serves as the guarantor, GBG USA said. The stalking horse bid could face competitors during the process if there are higher or better offers. WH AQ Holdings is majority owned by Windsong.
GBG USA has indicated in other recent disclosures that it plans to remain a going concern, and that it is looking to use the bankruptcy sale process to unload certain assets including inventory. The company plans to use the Chapter 11 process to conduct bankruptcy sales of its assets including the Ely & Walker, Airband, MagnaReady, Yarrow, B New York and Juniperunltd brands, according to its statement Thursday. However, Windsong is not believed to be interested in those brands, which are viewed in the market as a harder sell.
“Over the past 18 months, the retail landscape has been greatly impacted by COVID-19, creating hardships for us and many others across our industry,” Rick Darling, chief executive officer of Global Brands Group, said in the company’s statement. “Our business has also been impacted by ongoing structural shifts in the retail industry, as well as persistent geopolitical tensions that have disrupted supply chains,” Darling added. “These factors have been especially detrimental to GBG USA.”
The filing followed weeks of speculation about the company’s financial health as it let go of some of its licensed brands including Spyder and Frye, using the proceeds to help repay its lenders. Shares of Global Brands also halted trading this month on the Hong Kong Stock Exchange, as the company struggled to report its financial results, as WWD previously reported.
“We have taken significant steps over the last year to strengthen GBG USA’s financial position while also conducting a thorough review of all strategic options for GBG USA and its brands,” Darling said.
“This process resulted in the successful sales of our South Korean Spyder retail operation, the inventory and related assets for two of our brands, Spyder and Frye, and an [asset purchase agreement] for our Aquatalia brand and business,” he said. “As for GBG USA’s remaining assets, we determined that a court-supervised process to facilitate a sale is the best course of action to maximize value for all stakeholders and address the financial position of GBG USA and the group in a fair and transparent manner.”
Global Brands Group’s European wholesale and brand management businesses are not part of the bankruptcy proceedings.
Like many other retail companies to file for bankruptcy over the past year, GBG USA attributed its financial difficulties to the ongoing COVID-19 pandemic, a public health crisis that has prolonged as vaccination rates level off and the delta variant continues to spread.
Global Brands Group had also disclosed in financial filings this month that its “seriously challenged” North America business experienced a roughly $204 million operating loss for the year ended in March 2021. The figure, which the company said is unaudited, accounts for roughly 92 percent of GBG’s operating losses for the period, according to the company.
“The ongoing COVID-19 pandemic and geopolitical uncertainties, as well as structural shifts in the retail industry, continue to impact the group’s business, particularly for its North America wholesale operations, and inhibit initiatives to address its deteriorating financial position,” the company said in a financial disclosure posted on its website this month.
“The North America and Europe wholesale businesses skew heavily toward the fall and holiday seasons,” the company had said in the disclosure.
“With the rapid spread of COVID-19 subduing consumer demand during those periods, particularly in the United States, the financial position of the North America business was especially hard hit,” the company said. “By the end of the period, the North America business’ significant operating loss contributed to an acute lack of liquidity for this business.”
The company’s strategy to use the bankruptcy process to sell off its brands is the product of months of planning, GBG USA’s chief financial officer Mark Caldwell wrote in a filing Thursday. In recent months, the company received more than half a dozen “indications of interest” from potential buyers willing to purchase some or all of its business, according to Caldwell.
The sale of the Spyder and Frye brands through that process provided $15 million in funds that helped facilitate the bankruptcy filing, he wrote. But GBG USA is also seeking the court’s approval for a $16 million debtor-in-possession credit facility from ReStore Capital LLC, according to the filing. Under the tight timeline presented to the court, GBG USA plans to execute its intended sale of its brands by Oct. 7.
“The debtors enter bankruptcy running on fumes,” Caldwell wrote. “Faced with the catastrophic effects of the global COVID-19 pandemic, industry-specific headwinds and other liquidity constraints, the debtors had no choice but to file for bankruptcy in an effort to preserve — and maximize — value for their creditors.”