Le Tote seeks bankruptcy court approval of settlement with HBC

By Sarah Lizee

Olympia, Wash., Jan. 12 – Le Tote, Inc. is seeking court approval of a settlement with secured creditors HBC US Propco Holdings LLC and HBC US Holdings Inc., according to a Monday filing with the U.S. Bankruptcy Court for the Eastern District of Virginia.

The company said it has reached a settlement with HBC that realizes value for outstanding potential claims that “far exceeds the lowest point in the reasonable range of potential litigation outcomes,” and enables the debtors to satisfy administrative and priority claims in full and to make a significant distribution to unsecured creditors.

“By doing so, the HBC settlement clears the path for the debtors to emerge from Chapter 11 through confirmation of the plan,” the company said.

Key terms of settlement

Under the terms of the settlement, the debtors’ claims against the HBC secured parties are settled and the parties will exchange mutual releases under the plan.

The HBC secured parties agree to subordinate their claims to several millions of dollars in administrative and priority claims and to allow general unsecured creditors to receive $3 million of distributable cash following the payment of administrative and priority claims and payment of $8 million to the HBC secured parties. Distributable cash after these payments will be split 50-50 between the HBC secured parties and general unsecured creditors.

The HBC secured parties agree to allocate the first $1 million of proceeds of pending litigation against Urban Outfitters to general unsecured creditors, with a 50-50 split of proceeds afterward between the HBC secured parties and general unsecured creditors.

The debtors will assume and assign to a designee of the HBC secured parties two master leases whose landlords are affiliates of HBS Global Properties LLC. The HBS landlords agree not to assert any cash cure claims in connection with the assignment.

The debtors will reject a third master lease whose landlord is HBC Propco, and HBC Propco agrees that the plan will disallow or waive all rejection damages claims.

The HBC secured parties agree to reduce their claim for disputed payments for services under the transition services agreement for November and December 2020 by about $60,000 from the amount previously asserted. The debtors will pay the remainder of the TSA shortfall claim on the effective date of the plan.

The HBC secured parties agree to continue to provide services under the transition services agreement in January and February 2021 for total fixed payments of $513,017 per month, a savings over contractual charges of roughly $6.8 million.

Committee opposition

Le Tote said the debtors, their advisers and the special committee of independent directors worked to negotiate the settlement and included the official committee of unsecured creditors in the negotiation and development of the settlement.

The company said that it and the restructuring committee entered into a common interest agreement in early October with the unsecured creditors committee, shared information about the debtors’ analysis of the claims at issue and approach to potential resolution of those claims and “repeatedly encouraged” the unsecured creditors committee to submit a settlement proposal, but it did not do so until “extremely late” in the process, after a number of rounds of negotiations had occurred.

“Unfortunately, when the [unsecured creditors committee] finally did make a proposal, its demand was overreaching and untethered to any reasonable assessment of the claims at issue,” Le Tote said.

“The UCC would prefer to roll the proverbial litigation dice against the estates’ primary secured creditor and the debtors’ critical business partner – even at the risk of achieving a result inferior to that contained in the HBC settlement and falling into Chapter 7 – in an all-or-nothing gambit that would put the HBC settlement’s meaningful recoveries for general unsecured creditors and the efficient administration of these Chapter 11 cases in jeopardy.”

New York-based Lord & Taylor, a unit of Le Tote, operates fashion stores in the United States. The company filed bankruptcy on Aug. 2 under Chapter 11 case number 20-33332.

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