UPDATE: KPS emerges as key bidder for Furniture Brands
Heath E. Combs -- Furniture Today, October 3, 2013
WILMINGTON, Del. — Unsecured creditors are exerting more influence in Furniture Brands International's Chapter 11 bankruptcy case with the emergence of KPS Capital Partners on Wednesday as the stalking horse bidder.
In court documents filed Wednesday, the unsecured creditors outlined many areas - especially regarding yet-to-be-approved bidding procedures - where Furniture Brands will have to work with them. The company initially hadn't sought the creditors' input in those areas.
The new deal approved by the court on Wednesday makes KPS the company's debtor-in-possession financing provider and the stalking horse bidder in a sale of Furniture Brands' assets, which would take place later this year.
The stalking horse is a favored position in bankruptcy asset sale. In exchange for keeping the company from having to accept lowball offers, it can set the structure of an asset deal and get protections, like a breakup fee if its bid is exceeded, for diligence performed creating its bid.
KPS, a private equity firm, made an offer of $280 million for the assets last week in an effort to be the stalking horse - beating out a $260 million bid by Oaktree Capital Management, which Furniture Brands earlier had proposed as the stalking horse bidder and DIP financing source.
According to Furniture Brands officials, KPS has committed to fund up to approximately $190 million as the DIP lender.
In a press release Thursday, Furniture Brands Chairman and CEO Ralph Scozzafava said, "The KPS bid for our business establishes a solid foundation as we move toward a successful emergence from Chapter 11. The KPS bid also enhances our creditors' return with a higher total price as well as enhanced DIP financing terms. We are also pleased that KPS has extended an offer of employment to substantially all of our current employees."
In particular, the deal may be a good omen for keeping Lane Home Furnishings in operation. KPS had said earlier that keeping Lane open was necessary for its involvement.
Other bidders would still be able to submit bids for FBI's assets, according to officials from New York-based corporate, intellectual property and financial restructuring firm Cohen Tauber Spievack & Wagner P.C., who attended yesterday's hearing, bids are due by Dec. 5 and an auction will be held Dec. 10, they said. A hearing to confirm the sale is set for Dec. 12.
The news that KPS would unseat Oaktree as the stalking horse bidder came as a surprise Wednesday.
"KPS was persistent," said Jerry Cohen, an attorney and partner at Cohen Tauber.
"And the fact that the unsecured creditors' committee was strongly backing KPS and its deal had much to do with them winning the coveted stalking horse position."
To this point, FBI had been seeking a lot of leeway to make decisions in bankruptcy on its own - but the unsecured creditors have wanted more influence. Recently, the committee pointed out that FBI has $300 million in unsecured debt and argued that its secured creditors are over-secured.
FBI has sought in court documents to deny the unsecured creditors admission to the upcoming auction of the company's assets, saying their presence would make the proceedings unruly. The list of unsecured creditors is long - more than 1,700 pages name more than 40,000 individuals and businesses.
Ron Downs, managing director of The Downs Group, a recovery specialist not involved in the FBI case, said that the unsecured creditors committee has been trying to slow down the fast pace of FBI's Chapter 11 case to make sure its claims get paid. Wednesday's decision was the first significant flexing of their influence, he said.
"They got the bidding raised so it became almost a no brainer for the judge," Downs said. "Although Furniture Brands obviously wanted Oaktree, and Oaktree definitely wanted Furniture Brands, the KPS deal is better."
Furniture Brands, parent company of Broyhill, Thomasville, Lane, Henredon, Drexel Heritage, Maitland-Smith and other brands, filed for Chapter 11 bankruptcy protection on Sept. 9.
For the latest news on Furniture Brands International, click here to visit our Channel page.
- Oct 15, 2013