BHCosmetics files bankruptcy, gets $4.3 million stalking horse bid

By Sarah Lizee

Olympia, Wash., Jan. 18 – BHCosmetics Holdings, LLC and some of its affiliates filed Chapter 11 bankruptcy on Friday in the U.S. Bankruptcy Court for the District of Delaware, according to court documents.

The company said in a press release that it intends to use the Chapter 11 process to effectuate the sale of substantially all of its assets.

“The makeup category has been in decline beginning with the ‘no-makeup makeup’ trend and accelerating with Covid-19 mask mandates in early 2020,” Pamela Baxter, the company’s chief executive officer, said in the release.

“Due to these circumstances, BH Cosmetics, along with other makeup-specific brands have experienced significant headwinds,” Spencer M. Ware, the company’s chief restructuring officer and co-chief executive officer, added.

“Additionally, rising material costs and supply chain disruptions have impacted the results of the BH Cosmetics business model.”

Stalking horse deal

The company said it has received a stalking horse bid from RBI Acquisition Holdings, LLC for a substantial portion of its assets, including a majority of its intellectual property and inventory. The total cash consideration of the bid is about $4.3 million, subject to higher or otherwise better offers.

The stalking horse agreement includes an up to $172,000 breakup fee and an up to $150,000 expense reimbursement. Under the terms of the agreement, the sale would close by Feb. 24, subject to extension to March 4, if needed.

Qualified bids are due by noon ET on Feb. 11, an auction would be held on Feb. 15, and a sale hearing would take place on Feb. 17.

Debt details

The company’s debt mainly consists of a prepetition asset-based facility maturing Dec. 28, 2022, and other unsecured debt consisting of employee-related liabilities and trade debt, including amounts owed to landlords in connection with certain leases of nonresidential property.

The $25 million ABL facility was entered into on Dec. 28, 2017 with Fifth Third Bank, NA as administrative and collateral agent, lender, letter-of-credit issuer and swingline lender. The facility consists of an initial term loan commitment of $15 million and a revolving credit commitment of $10 million, which includes an up to $2.5 million swingline loan and a $2.5 million letter of credit.

As of the petition date, the outstanding balance of the term loan and revolver were $9.63 million and $13.86 million, respectively, and in each case including accrued interest through Dec. 21, but not including certain fees and other charges.

The debtor is seeking court approval to use the cash collateral of its prepetition lender. The company said that without access to the cash collateral, a substantial value degradation would occur as a result of its inability to continue operations, which would not only impact revenue, but also negatively impact the debtors’ employees, vendors, customers and brand, jeopardizing the debtors’ ability to effect a successful sale process.

In its petition, the company listed $50 million to $100 million in both assets and liabilities.

Its largest unsecured creditors are Dongguan Fay Cosmetic Brushes Co., Ltd., based in Dongguan, China, with a $2.42 million trade claim, Beauty Beyond Industry Ltd., based in Zhuhai, China, with a $1.08 million trade claim, and Shenzhen Color Cosmetic Products Co., Ltd., based in Shenzhen, China, with a $1.08 million trade claim.

The debtors’ restructuring counsel is Young, Conaway, Stargatt & Taylor, LLP.

BHCosmetics is a Culver City, Calif.-based beauty brand that focuses on clean, vegan and cruelty-free cosmetics. The Chapter 11 case number is 22-10050.

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