United Retail Group files bankruptcy; Versa submits stalking horse bid

By Caroline Salls

Pittsburgh, Feb. 1 - Redcats USA subsidiary United Retail Group, Inc. filed Chapter 11 bankruptcy Wednesday in the U.S. Bankruptcy Court for the Southern District of New York and has entered into a stalking horse asset purchase agreement with an entity controlled by Versa Capital Management, according to a news release.

United Retail said Versa Capital has agreed to buy the company's assets through the bankruptcy process for cash and the assumption of specified liabilities.

According to a statement filed with the court, Versa will pay up to $15 million of debtor-in-possession financing, up to $2 million of wind-down costs for Avenue's estates, $500,000 to holders of unsecured claims, up to $11.1 million for administrative and priority claims, up to $2.2 million of Redcats Asia Ltd. trade payables and up to $4.7 million of post-closing liabilities.

In addition, Versa will commit to capitalize the acquisition vehicle with $13 million at closing and will guarantee up to $35 million of payment obligations.

Also under the Versa agreement, Redcats USA will pay Versa $20 million in cash, prorated in connection with the number of leases assumed at closing.

Versa Capital has agreed to operate United Retail's Avenue business as a going concern while keeping the majority of Avenue stores open, the release said.

The company said the sale process is expected to be completed on an "expedited timeframe."

DIP financing

In conjunction with the filing, United Retail Group has arranged a $40 million debtor-in-possession facility with existing revolving credit lender Wells Fargo Bank, NA to provide working capital for Avenue to continue to operate as usual.

The DIP agreement will terminate on the earliest of 210 days from the bankruptcy filing date, the effective date of a plan of reorganization or liquidation and the completion of a sale of substantially all company assets.

The interest rate will be the base rate plus 300 basis points.

The company is seeking interim access to $25 million of the DIP financing.

Avenue stores open

United Retail said Avenue's operations, including its 433 stores and its e-commerce site, are open and serving customers.

"Avenue is a great brand with a unique position in women's specialty apparel, and we are in the process of turning the company around," United Retail chief executive officer Dawn Robertson said in the release.

"With today's filing, we are seeking relief from disproportionately high costs for many of our leases that were signed prior to the recession.

"Through Chapter 11 relief and a lease renegotiation process, the turnaround of Avenue can continue, enabling the business to emerge stronger, with fewer liabilities, and with better store profitability."

Redcats USA executive vice president John Heaney said in the release, "We are happy to have found a buyer and are confident in Versa's plan to continue re-energizing the Avenue brand.

"This sale was part of a strategic decision by Redcats USA to focus its business online moving forward, and we are pleased to have found a company that can continue the turn-around process we envisioned from the beginning."

Debt details

According to court documents, United Retail had $117.2 million of total assets and $67.3 million of total debt at Dec. 31.

The company's largest unsecured creditors include

• Valentine USA Inc. of New York, with a $1.95 million trade claim;

• LF Centennial Pte Ltd. of Singapore, with a $1.92 million trade claim; and

• Porta Asiatica Enterprise, based in Shanghai, with a $1.25 million trade claim.

United Retail said it recently reconstituted a new board. The members include senior counsel and Weil, Gotshal, & Manges former senior partner Alan B. Miller and Abacus Advisors chairman Alan Cohen.

The company's legal adviser is Kirkland & Ellis LLP, its financial adviser is Peter J. Solomon Co., and its restructuring adviser is AlixPartners. Versa Capital's legal adviser is Sullivan & Cromwell LLP.

United Retail is a Rochelle Park, N.J., specialty retailer of large-size women's fashion apparel, footwear and accessories. The Chapter 11 case number is 12-10405.

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