Brookstone Wins Approval of Financing After Creditor Deal

Brookstone Inc., the luxury gadget retailer that sells $4,600 massage chairs, won court approval of $96.3 million in financing to help it through bankruptcy after reaching a deal with unsecured creditors and defeating remaining opposition.

At a hearing today in Wilmington, Delaware, U.S. Bankruptcy Judge Brendan Linehan Shannon granted final approval of the financing package, provided by a majority of Brookstone’s noteholders.

The judge overruled objections from a group of noteholders that were excluded from participating in the loan, saying Brookstone “made a reasoned business decision” that the loan is more favorable than alternatives because it locks in support from the majority of noteholders for its turnaround plan.

Brookstone filed for bankruptcy April 3 with a deal to sell its assets to Spencer Spirit Holdings Inc. The chain has struggled to adapt to a retail landscape where online competitors dominate and consumers are cutting back on non-essentials.

The chain listed debt and assets of as much as $500 million each in Chapter 11 documents. Spencer, a novelty retailer, would pay $120 million in cash and $7.5 million in new notes and assume about $18.5 million in liabilities.

Brookstone also won court approval today to hold a June 2 auction to test Spencer’s offer as well as an agreement with noteholders to support its restructuring plan. Bids to compete in the auction are due by May 28.

Unsecured Support

Brookstone gained the support of unsecured creditors, mainly vendors and suppliers, by reaching an agreement that will give them at least $1.25 million and as much as $1.5 million if the company receives a higher bid at the auction.

The objecting noteholders, who collectively own about $6 million, argued a so-called roll up provision in the financing that takes $30 million of the majority noteholder debt and makes it an obligation under the bankruptcy loan with a higher payment priority is unfair and treats the similar creditors differently, resulting in diminished recovery on their notes.

“Roll-ups are not a favored aspect” of bankruptcy financing “but they are allowed and have been approved,” Shannon said at the hearing.

The roll-up provision is a pivotal piece of the financing for gaining noteholder support of the larger restructuring, making the loan the best possible choice, Charles A. Dale, a lawyer for the company, said at the hearing.

Tool Merchant

Brookstone, based in Merrimack, New Hampshire, started as a catalog business in 1965, offering “hard-to-find tools” before opening its first store in 1973 in Peterborough, New Hampshire, according to its website. Most of its 242 locations in the U.S. and Puerto Rico are in malls.

The company went private nine years ago in a $422 million deal backed by Temasek Holdings Pte, Singapore’s state-owned investment company, along with OSIM International Ltd. and JW Childs Associates LP. Singapore-based OSIM, Asia’s biggest maker of massage chairs, sells its products through Brookstone stores.

The case is in re Brookstone Holdings Corp., 14-bk-10752, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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