(Bloomberg) — Sequential Brands Group Inc., the parent company of brands including the Jessica Simpson fashion collection and Joe’s Jeans, filed for bankruptcy protection after the apparel industry was upended by changing consumer habits and the coronavirus pandemic.
The owner and licensor of brands such as Gaiam yoga filed its Chapter 11 petition in Wilmington, Delaware with plans to hold an auction as part of a deal with some of its lenders. They include affiliates of Apollo Global Management Inc. and KKR & Co., according to court documents. Two initial bidders have offered $375 million for many of the company’s assets.
Sequential listed debts of $435 million and assets of $443 million in court papers. The company said it has arranged a $150 million loan to help fund its reorganization, subject to approval by John Dorsey, the judge overseeing the case.
Shares of the company plunged as much as 62% after the filing, spurring a trading halt, and the shares were still down by 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 led to temporary shutdowns of physical stores and kept consumers at home. J. Crew Group Inc., Neiman Marcus Group LLC and J.C. Penney Co. 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, setting a floor under the price. Should a judge approve those agreements, Galaxy Active would make a binding, initial offer for the so-called Active Division. Centric Brands, which holds a long-term license for Joe’s Jeans, will be the stalking horse for the denim and sportswear label.
Galaxy has offered $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 either sell itself or restructure since the autumn of 2019, Chief Financial Officer Lorraine DiSanto said in a court affidavit. Those efforts began not long after the company sold Martha Stewart Living Omnimedia for $166 million, just a few years after acquiring the company.
Pandemic Impact
In March 2020, just as company officials and their main adviser, Stifel, Nicolaus & Co., started a sale process, the pandemic began shutting down economies all over the world. In the year that followed, 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, denting revenue. 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 unloaded its Heelys sneaker brand in April for $11 million.
In December, the Securities and Exchange Commission accused Sequential of violating antifraud, reporting, books and records and internal controls provisions of federal securities laws related to goodwill accounting in 2016 and 2017.
Among the biggest 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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