In urging a Missouri bankruptcy court to deny approval of Payless’ reorganization plan, the case’s unsecured creditors committee charged that Golden Gate Capital and Blum Capital Partners had “siphoned over $400 million out of the debtors” following the retailer’s 2012 IPO.
The money received by the two private equity funds purportedly represented dividend payouts and the committee wants the validity of the “potential claims” to be investigated before a vote on the disclosure plan.
In 2012, Wolverine Worldwide Inc. along with Blum Capital and Golden Gate acquired Collective Brands for $1.32 billion. The deal saw Blum Capital and Golden Gate take over Payless ShoeSource and Collective’s international licensing business. Wolverine took over Collective’s remaining businesses, consisting of the Sperry Top-Sider, Saucony, Stride Rite and Keds.
Payless filed for bankruptcy on April 4, 2017.
In court papers, the unsecured creditors committee said the LBO increased Payless’ debt from approximately $125 million as of the fiscal year end immediately prior to the 2012 transaction to approximately $400 million. In January 2017, Payless appointed a “purportedly independent” director, Charles Cremens, to investigate the dividend payouts to Blum Capital and Golden Gate.
“Nearly six months later, Mr. Cremens has not ‘concluded’ his investigation, and yet the debtors propose to proceed with solicitation while that critical matter is unresolved,” the unsecured creditors committee wrote.
The committee said it has come up with its own prepared by Dr. Israel Shaked 160-page report that shows that Blum Capital and Golden Gate’s claims “are valuable assets of these estates and must be pursued.”
The committee argues that in order to consider the plan and any alternatives to it, recoveries should be estimated on whether the PE firm’s claims are rejected or accepted. Creditors must also understand the size of the disputed claims, which it estimates to be “in the hundreds of millions of dollars.” Finally, the plan should also show how recoveries would be affected if the claims were prosecuted post-confirmation.
Other complaints about the plan was that it makes no mention of Cremens’ “extensive ties to at least one member” of Golden Gate’s senior management. They also charge that Cremens has not engage a financial expert to evaluate the claims and said the plan lacks adequate in its liquidation analysis.
In response, lawyers for Payless said Clemens, working with Alvarez & Marsal, continues to work on the investigation while detailing the extensive work already over all “potential claims.” Clemens is also open to dedicating time to resolve the Blum Capital and Golden Gate claim issue and “would like to work with the constituents to explore a consensual global resolution.”
But Payless’ lawyers basically asserted that the disclosure plan can proceed as set and any adjustments can be made later.
“The Disclosure Statement is clear that holders should vote on the assumption that the release provisions will not be modified,” Payless wrote. “The merits and value of the Potential Claims are disputed and the potential outcomes range from zero to hundreds of millions of dollars. Like any claims that are dealt with under a plan, whether the claims are released or pursued after confirmation, the actual outcome and value of the claim is not, and cannot be, known at the time of voting on the plan. To require otherwise in effect requires litigation of estate causes of action before confirmation of a plan, which is plainly neither required for a disclosure statement to contain adequate information, nor prudent for a debtor to maximize value.”
Payless also said had supplied the company with Cremens provided the Committee with a list of his “extensive independent director and restructuring officer related engagements” since 1999, three of which related to Golden Gate. The retailer’s counsel Munger, Tolles & Olson, was engaged by Cremens to provide independent advice and he has been advised by the retained financial advisors, Alvarez & Marsal. The lawyers concluded, “In short, his investigation and board service has been rigorous, fully independent, and in all res
A hearing to confirm the plan has been set for July 24.
Photo courtesy Payless
