Orchard Supply wins OK for interim DIP, liquidator selection process

By Jim Witters

Wilmington, Del., June 18 - Orchard Supply Hardware Stores Corp. received approval for interim access to more than $130 million in debtor-in-possession financing during a June 18 hearing in the U.S. Bankruptcy Court for the District of Delaware.

Judge Christopher S. Sontchi also approved procedures for selecting a company to conduct going-out-of-business sales at eight of Orchard Supply's 60 stores. The company declined to name which stores are closing.

As previously reported, Lowe's Cos., Inc. has agreed to acquire the majority of the debtor's assets for $205 million in cash, plus the assumption of payables owed to nearly all of Orchard's supplier partners.

The eight underperforming stores scheduled to be closed are not part of that asset purchase agreement.

During a lengthy and sometimes contentious hearing, Sontchi ordered the deletion of several provisions in the proposed DIP order that he said would restrict the court's authority or prohibit the debtor from performing its fiduciary responsibilities.

Richard A. Chesley, representing Orchard Supply, offered to make the changes and submit a revised order for Sontchi's signature late on June 18. Sontchi said that, if issues remained, he would reconvene the hearing at 10 a.m. ET on June 19.

DIP terms

The company has secured commitments for $176.33 million in debtor-in-possession financing from existing ABL lender Wells Fargo Bank and its term loan lenders.

The DIP financing comprises a $164.33 million ABL facility and a $12 million term loan facility.

Sontchi approved interim access to $124.33 million of an asset-based-loan facility and $6 million of a term loan facility.

The ABL facility consists of a $140 million senior secured superpriority revolving credit facility, a $7.1 million senior secured superpriority first-in last-out term loan facility and a $17.2 million senior secured term loan facility from ABL term DIP lenders.

The ABL facility will mature on the earliest of one year from the effective date, 10 days after entry of a sale order, 14 days after confirmation of a plan of reorganization and the plan effective date. The term loan facility will mature on the earliest of 120 days from the bankruptcy filing date, 10 days after the sale order, 14 days after plan confirmation and the plan effective date.

The ABL revolving loans will bear interest at the Base Rate plus 75 basis points. Each protective advance owed to a revolving lender will bear interest at the Base rate plus 300 bps.

The FILO term loan will bear interest at the Base Rate plus 175 bps, and the supplemental term loan will bear interest at 925 bps plus the greater of the adjusted Libor rate or 0.75%.

Debtor's attorney Chun I. Jang said the $12 million term loan will be used to pay down the Wells Fargo ABL to provide more borrowing capacity.

Coupled with other provisions in the DIP agreement, there will be a full rollup of prepetition secured debt at the final DIP hearing, Jang said.

The term loan lenders also formally agreed to support the acquisition agreement with Lowe's as the stalking horse bidder.

The final DIP hearing is scheduled for 1 p.m. ET on July 15.

Bid procedures

The eight store closing sales will dramatically reduce the administrative costs and will benefit the debtor's estate by providing liquidity during the Chapter 11 cases, Chesley said.

The debtor stressed the importance of receiving authority to select a liquidator in time to take advantage of the July 4 weekend.

Tiiara Patton, representing the U.S. Trustee's Office, objected to the tight schedule.

With the formation of an official committee of unsecured creditors scheduled for June 25, the proposed auction date of June 27 provided insufficient time for review, she said.

First-day bankruptcy hearings are intended to maintain the status quo, Patton said, not to move the case forward before creditors have a chance to be heard.

Judge Sontchi overruled the objection, noting that he was approving the procedures, not the deal or the liquidator.

A joint venture of Hilco Merchant Resources, LLC and Gordon Brothers Retail Partners, LLC will serve as the stalking horse bidder in the selection of a liquidation agent for the closing stores.

Competing liquidation agent bids are due by June 25.

The auction is scheduled for June 27.

The sale hearing is scheduled for 1 p.m. ET on June 28.

If the joint venture is not the high bidder, Orchard will pay it a $300,000 breakup fee.

The closing sales will run from the date of the court order approving the closing through Sept. 30.

Orchard will have the right to include up to 22 additional stores to the closing sale until 5 p.m. ET on July 31.

Asset sale procedures

Judge Sontchi scheduled a bid procedures hearing on the sale of the remainder of the company's assets for 1 p.m. ET on July 8.

Under its stalking horse agreement, if Lowe's is not the high bidder for the assets, Orchard would pay it a $6.15 million breakup fee and reimburse up to $850,000 of its expenses.

The proposed bidding procedures call for competing bids to be submitted by 4 p.m. ET on Aug. 9.

The bids would have to be at least equal to the stalking horse bid, plus the amount of the breakup fee and expense reimbursement and a $5 million overbid amount.

The auction would be Aug. 14.

Bids at auction would be made in $2 million increments.

Orchard Supply, a San Jose, Calif.-based hardware retailer, filed for bankruptcy on June 17. Its Chapter 11 case number is 13-11565.

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