Teen retailer Wet Seal Inc. is slated to emerge from Chapter 11 bankruptcy around April 15 as a privately held company with a new corporate moniker—Seal123 Inc.
It will retain the Wet Seal brand for its stores, according to the company.
A U.S. Bankruptcy Court judge last week approved the sale of the chain to Mador Lending LLC, an affiliate of Philadelphia-based Versa Capital Management LLC. Mador’s winning bid for the Foothill Ranch-based retailer included $20 million debtor-in-possession financing to cover Wet Seal’s day-to-day operations and working capital needs.
“Mador has been incredibly diligent and single-minded in their efforts to acquire these assets starting from virtually the first day of the case, perhaps a little bit beforehand, and continuing through to the present,” Lee Bogdanoff, a partner at Klee Tuchin Bogdanoff & Stern LLP, the Los Angeles law firm that represents Wet Seal in the proceedings, said during the March 12 auction hearing.
“I think the debtors have a strong confidence that they will see this transaction to the end and will make a serious and earnest effort to make these businesses successful.”
Wet Seal changes hands at a time of transformation in the teen retail category. Fast-fashion specialists such as the Forever 21 Inc. and H&M chains have shaken longer-established competitors in recent years—Delia’s and Deb Stores Holding LLC each filed for bankruptcy at the end of last year and are in the process of liquidating their inventory.
Auction
Mador, whose parent has more than $1.4 billion in assets under management, got Wet Seal after beating out Los Angeles-based investment bank B. Riley Financial Inc. during a two-day auction last month.
It sweetened the deal with $10 million in cash available to the retailer on the closing date. Mador’s bid also included $7.5 million for unsecured creditors.
The funds provide some assurance of viability to the retailer’s landlords and various vendors, among others, according to Bogdanoff.
Wet Seal laid off nearly 3,700 employees and shut down 338 stores right before it filed for bankruptcy in January. It reported $92.8 million in assets and $103.4 million in debts, including $28 million to Hudson Bay Master Fund Ltd. The recently delisted retailer’s market value had fallen to $3.4 million on the Nasdaq exchange at the time, down from $213.6 million about a year earlier.
Wet Seal now operates 173 stores and has about 2,200 employees. All of the workers will be “discharged prior to close of the sale” and offered positions at about 140 stores Mador plans to keep open.
Corner Office
Wet Seal has moved to keep its corner office intact, an effort that started with an email to Versa Chairman and Chief Executive Greg Segall from Chief Executive Ed Thomas, who cited a “great deal of difficulty keeping the executive team together.”
Thomas subsequently negotiated new employment contracts for himself; Interim Chief Financial Officer Thomas Hillebrandt; Chief Merchandising Officer Christine Lee; Chief Digital Officer Jon Kubo; West Regional Director Rachel Page; and Kimberly Bajrech, general merchandise manager.
Mador also is negotiating lease agreements and settlements with current and past store landlords.
Wet Seal has also agreed not to allow its “liquidity amount” to drop below $3 million, among other conditions.
