Furniture Brands replaces DIP lender, stalking horse; $280 million bid

By Jim Witters

Wilmington, Del., Oct. 2 - Furniture Brands International received court approval to replace its debtor-in-possession financing facility lender and stalking horse bidder, Oaktree Capital Management LP, with financing and a $280 million bid from KPS Capital Partners, LP during an Oct. 2 hearing in the U.S. Bankruptcy Court for the District of Delaware.

Judge Christopher S. Sontchi also approved bidding procedures that conclude with a Dec. 12 sale hearing.

KPS is cashing out Oaktree's $140 million DIP facility and a $50 million pre-petition term loan.

Oaktree will receive about $4 million to cover its original issue discount fee and its termination fee, as approved in the court's interim DIP order.

Evolution of the deal

Oaktree and KPS have been bidding against each other for the debtors' assets since before the bankruptcy case began.

KPS made a counter offer to Oaktree's stalking horse bid at a Sept. 11 hearing, prompting Oaktree to renegotiate its asset purchase agreement during a court recess. The competing offers continued after that hearing.

Debtors attorney Luc A. Despins told the court that the debtors and the official committee of unsecured creditors established an informal deadline of Sept. 26 for the two parties to submit their highest and best bids.

Oaktree raised its bid to $260 million from its initial $166 million. Oaktree also agreed to serve as backstop for the Lane business unit, with a price of $49 million.

KPS offered $253 million before the deadline. The KPS bid included the Lane assets.

On Sept. 27, KPS raised its bid to $270 million, with a provision that it would top any other qualified bid by $1 million up to a cap of $280 million.

After negotiating with the committee, KPS changed its bid to a purchase price of $280 million with no adjustments for working capital.

Other benefits to the KPS bid are

• The bid includes the Lane business unit, saving the debtors' estates "several million dollars" in potential shutdown costs;

• KPS agreed to assume $2.4 million in cure costs for the Lane business;

• The asset purchase agreement eliminates provisions directing the allocation of sale proceeds, avoiding the appearance of a sub rosa plan;

• About $8 million in potential assets - including causes of action, insurance policies and two facilities - are being left for the estate.

Proceeds from those assets will be distributed to unsecured creditors;

• KPS is assuming $10 million in accounts payable; and

• KPS has agreed to employ all the Furniture Brand workers who are on the payroll at the time the sale closes, honoring their accrued vacation, sick pay and other benefits.

DIP terms

The KPS DIP facility are similar to those in the Oaktree facility, Despins said.

The details of the financing were not available at the hearing, because KPS submitted its final documentation to the debtors just before the hearing began, he said.

Despins told judge Sontchi that the debtors essentially just wanted to substitute KPS for Oaktree throughout the loan documents and court filings.

Oaktree provided a $90 million term loan and a $50 million revolving credit facility.

The facility matured on the earliest of the closing of a sale, 150 days after the bankruptcy filing date and the occurrence of an event of default.

The company will pay a $50,000 annual administrative fee.

The interest rate is 3% paid in kind.

Sontchi granted interim approval for the financing and scheduled a hearing for final approval on Oct. 11.

Bid procedures

Under the bidding procedures approved at the hearing

• The bid deadline is Dec. 5;

• An auction is scheduled for Dec. 10;

• The sale hearing is scheduled for Dec. 12; and

• If KPS is not the successful bidder, KPS will be paid a $4 million breakup fee.

Under a provision negotiated among the debtors, the creditors committee and the stalking horse bidder, the auction could be moved 15 days earlier, if the debtor believes the cost of administering the case is excessive.

Furniture Brands, a St. Louis-based designer, manufacturer and retailer of home furnishings, filed for bankruptcy on Sept. 9. The Chapter 11 case number is 13-12329.

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