rue21 unsecured creditors committee blasts plan, disclosure statement

By Caroline Salls

Pittsburgh, July 7 – rue21, Inc.’s official committee of unsecured creditors objected to approval of the disclosure statement for the company’s proposed Chapter 11 plan, according to a Friday filing with the U.S. Bankruptcy Court for the Western District of Pennsylvania.

“The committee supports the debtors’ efforts to emerge quickly from these Chapter 11 cases through a reorganization if the go-forward retailer has sufficient liquidity to support their businesses,” the objection said.

“Unfortunately, the plan and disclosure statement filed by the debtors fail both of these goals.”

According to the objection, rue21, the committee and the company’s lenders are in talks regarding improving liquidity and correcting the deficiencies in the disclosure statement and plan.

The creditor group said the disclosure statement fails to disclose that some of the company’s largest vendors and most factors are not currently providing trade terms to the debtors.

“The debtors’ financial projections require increasingly larger credit terms over time from their vendors and factors to meet their projected liquidity targets,” the objection said.

As a result, the committee said rue21 must modify the disclosure statement to reflect the potential impact of the inability to receive necessary trade terms from vendors and factors on their contemplated restructuring.

In addition, the committee said creditors cannot make an informed decision on whether to accept a plan that includes broad insider releases without knowing the full nature and potential valuation of those claims.

Also, the committee said the disclosure statement must be revised to provide a more thorough description of the distribution and treatment of new equity, provide information regarding management equity and provide an explanation of the reorganized debtors’ overall corporate structure and treatment of intercompany claims and intercompany interests.

The creditor group also said the proposed plan includes a “death-trap” that would leave holders of general unsecured claims with no recovery if they vote to reject the plan and targets vendors and factors by requiring them to do business with the reorganized company under pre-existing trade terms.

“Feasibility of the plan cannot rest on the debtors’ blatant attempt at extorting trade terms from their vendors and factors,” the objection said. “Furthermore, these coercive provisions do not establish a plan proposed by the debtors in good faith.”

The disclosure statement hearing is scheduled for July 13.

rue21 is a Warrendale, Pa., specialty retailer focused on teens that filed for bankruptcy on May 15 under Chapter 11 case number 17-22045.

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