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Francesca’s enters stalking-horse agreement, gets bankruptcy court’s OK for sale process

Houston-based specialty apparel retailer Francesca’s Holding Corp. is one step closer to selling its business to a private investor.

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The U.S. Bankruptcy Court fo the District of Delaware has approved the company’s auction process, Francesca’s announced Jan. 8. Bids are due by 4 p.m. Eastern Time on Jan. 13, and the auction is set for 10 a.m. Eastern Time on Jan. 15.

The auction will only be held if Francesca’s receives one or more qualified bids. If not, Francesca’s will seek the bankruptcy court’s approval of its stalking-horse asset purchase agreement.

Francesca’s also announced Jan. 8 that it formalized the stalking-horse agreement with an affiliate of Los Angeles-based TerraMar Capital LLC and with New York-based Tiger Capital Group LLC. The buyers have agreed to purchase substantially all of the assets of Francesca’s and its subsidiaries for approximately $17 million in cash, subject to certain adjustments, plus the assumption of substantial liabilities.

“We are very excited to have reached an agreement with Francesca’s and are enthusiastic for the strength of the brand and the future prospects for the business,” said Joshua Phillips, managing partner of TerraMar Capital.

Francesca’s filed for Chapter 11 bankruptcy protection on Dec. 3 with plans to sell itself. At the time, Francesca’s and TerraMar had signed a letter of intent regarding a stalking-horse bidder agreement, and the retailer said it wanted to hold an auction as expeditiously as possible.

On Dec. 4, the Nasdaq Stock Market LLC informed Francesca’s that its stock would be suspended on Dec. 15 to begin the delisting process as a result of the bankruptcy filing.

On Dec. 8, the court approved access to $15 million of Francesca’s $25 million debtor-in-possession financing facility, which helps Francesca’s to continue in the normal course of business during the bankruptcy process.

In a Worker Adjustment and Retraining Notification Act letter to the Texas Workforce Commission on Dec. 11, Francesca’s said it close its headquarters at 8760 Clay Road and lay off all of the employees there beginning around Jan. 31.

“We are providing this notice because the terms and outcome of any transaction and its impact on the company’s employees are not certain,” Francesca’s WARN letter stated.

Francesca’s bankruptcy news had been expected. The company had been working to turn around its financial performance for years and continues to take financial hits from Covid-19, which has exacerbated many issues facing the brick-and-mortar retail industry.

“If the company is unable to raise sufficient additional capital to continue to fund operations and pay its obligations, the company will likely need to seek a restructuring under the protection of applicable bankruptcy laws,” the company said Nov. 16.

At the time, the company also revealed plans to close 140 stores by Jan. 30 as it continued to explore strategic options. As of Dec. 3, the company had 558 open boutiques, down from 700 as of Aug. 1.

In its first day motions on Dec. 4, Francesca’s said it had identified an additional 97 store locations that it planned to close because they were underperforming. No Houston-area stores were on the list.

On Jan. 4, the court also approved retaining A&G Realty Partners LLC as Francesca’s real estate consultant and adviser.

Francesca’s also retained O’Melveny & Myers LLP and Richards Layton & Finger PA as bankruptcy counsel and FTI Consulting Inc. and FTI Capital Advisors LLC as the company’s financial adviser and investment banker.

TerraMar and its affiliate retained McDonald Hopkins LLC and Young Conaway Stargatt & Taylor LLP as counsel.