Careismatic Brands files bankruptcy, lines up $125 million DIP loan

By Sarah Lizee

Olympia, Wash., Jan. 23 – Careismatic Brands LLC filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey to implement a restructuring support agreement with its equity sponsor, Partners Group (USA) Inc., and an informal group representing about 76% of its first-lien lenders and 70% of its second-lien lenders, according to a Monday evening press release.

The company said in court documents that it is confronting a decline in demand as a result of the post-Covid-19 market-wide downturn in the medical apparel industry.

It is also facing challenges posed by a higher interest rate environment and persistent supply chain disruptions.

The debtors also hold one-time legacy debt in connection with the resolution of litigation and compensation to former employees and advisers, the company said. And the debtors’ current capital structure is overleveraged given the downward cash flow forecasts.

The company said it aims to reset its financial foundation by eliminating $833 million of prepetition debt and substantially reducing its interest expense burden, enabling it to advance its ongoing transformation efforts and better serve its customers.

In connection with the RSA, the company received commitments from an informal group holding about 73% of the first-lien loans and about 20% of the second-lien term loans, represented by Milbank LLP as legal counsel, and Houlihan Lokey Capital, Inc. as investment banker, and an informal group holding about 3% of the first-lien term loans and 50% of the second-lien term loans represented by King & Spalding LLP to provide a proposed $125 million super-priority senior secured delayed-draw debtor-in-possession facility.

The DIP facility includes new money commitments of up to $125 million in term loans, the consensual use of cash collateral, and the potential conversion of the DIP facility to an exit term loan upon the effective date.

At exit, the financing would mature in five years and bear interest at SOFR plus 700 basis points in cash. The debtor may choose to pay SOFR plus 250 bps in cash plus 650 bps PIK for the first year.

The company is seeking interim access to $50 million of the new money commitments.

Through the RSA, the first-lien lenders will receive, in the event of a recapitalization transaction, 100% of the new equity in the reorganized company, or, in the event of a sale, the sale proceeds.

Second-lien lenders will receive five-year warrants to purchase up to 8.5% of the new common stock with a strike price set at $818 million.

Other secured claims and other priority claims will be unimpaired.

Holders of general unsecured claims will not receive a recovery if a recapitalization occurs, or a pro rata distribution of excess distributable cash after all higher-priority claims have been paid if a sale occurs.

Interests will be canceled with no distribution.

The RSA provides for mutual releases between the company, lenders and the sponsor, among others.

Careismatic has filed a number of customary first-day motions with the court to facilitate a smooth transition into Chapter 11 and support operations throughout its cases.

The company said it intends to operate without disruption during the process, including continuing to pay employee wages and benefits, maintaining customer programs, and honoring obligations to vendors.

Careismatic’s international entities are not a part of this filing and will continue to operate as usual.

In its petition, the company listed $1 billion to $10 billion in assets and $1 billion to $10 billion in liabilities.

Its largest unsecured creditors are Michelman & Robinson LLP, based in Los Angeles, with a $10.09 million professional services claim, Skadden, Arps, Slate, Meagher & Flom LLP, based in White Plains, N.Y., with a $6.34 million professional services claim, and Leopard Textiles Holding Ltd., based in Hong Kong, with a $2.25 million trade payables claim.

Kirkland & Ellis LLP and Cole Schotz P.C. are serving as legal counsel, PJT Partners LP is serving as investment banker, AlixPartners LLP is serving as financial adviser and C Street Advisory Group is serving as strategic communications adviser.

Careismatic Brands is a Santa Monica, Calif.-based designer, marketer and distributor of medical apparel, corporate identity apparel, school uniforms and adaptive clothing. The Chapter 11 case number is 24-10561.

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