(Bloomberg) — Sequential Brands Group Inc., the parent company of brands such as the Jessica Simpson fashion collection and Joe’s Jeans, has filed for bankruptcy protection after the apparel industry was disrupted by changing consumer habits and the coronavirus pandemic.
The owner and licensor of brands like Gaiam yoga has filed its Chapter 11 petition in Wilmington, Delaware, with plans to hold an auction as part of a deal with some of its backers. These are subsidiaries of Apollo Global Management Inc. and KKR & Co., according to court documents. Two initial bidders have bid $375 million for many of the company’s assets.
Sequential public debt of $435 million and assets of $443 million in court documents. The company said it has provided a $150 million loan to help fund the reorganization, subject to approval by John Dorsey, the judge overseeing the case.
The company’s shares plunged a whopping 62% after the filing, triggering a trading halt, and the shares still fell more than half at $5.96 as of 1:14 p.m. in New York.
Retailers across the country have struggled as Covid-19 precautions have led to temporary closures of brick-and-mortar stores and kept consumers at home. J.Crew Group Inc., Neiman Marcus Group LLC and JC Penney Co. have each filed for bankruptcy earlier in the pandemic.
Two of Sequential’s current partners, Galaxy Active and Centric Brands, agreed to serve as stalking horse bidders for the company’s assets, putting a floor below the price. Should a judge approve those agreements, Galaxy Active would make a binding, first offer for the so-called Active Division. Centric Brands, which has a long-term license to Joe’s Jeans, will be the stalking horse for the denim and sportswear label.
Galaxy has bid $333 million for Active Division, while Centric Brands said in a letter of intent it would pay $42 million for Joe’s, according to court records.
The company has been trying to sell or restructure itself since the fall of 2019, Chief Financial Officer Lorraine DiSanto said in an affidavit from the court. Those efforts began not long after the company sold Martha Stewart Living Omnimedia for $166 million, just a few years after its acquisition.
In March 2020, just as corporate officials and their chief adviser, Stifel, Nicolaus & Co., began a sales process, the pandemic began to shut down economies around the world. In the following year, Sequential defaulted on debt as it struggled to find buyers for its various brands, DiSanto said in the filing.
Many retailers that carry Sequential’s brands were closed for part of last year, affecting revenues. In late 2020, the company said it was considering a sale as part of a broad search for ways to dig out of its financial hole. The company launched its sneaker brand Heelys in April for $11 million.
In December, the Securities and Exchange Commission accused Sequential of violating anti-fraud, reporting, books and records, and internal control provisions of federal securities laws related to goodwill accounting in 2016 and 2017.
One of the largest owners of the company is Martha Stewart Family Limited Partnership with nearly 11%, according to court documents.
The case is Sequential Brands Group, Inc. 21-11194, U.S. Bankruptcy Court, District of Delaware (Wilmington).
(Updates with names of stalking horse bidders and lenders, starting in the second paragraph)
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