Item 1.03. Bankruptcy or Receivership.
Chapter 11 Filing
On September 9, 2019 (the
“Petition Date”), Fred’s, Inc. (the “Company”) and certain of its subsidiaries (collectively with the Company, the “Debtors”) each filed a voluntary petition in the United States Bankruptcy Court for the District
of Delaware (the “Bankruptcy Court”) seeking relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) (collectively, the “Chapter 11 Cases”). The Chapter 11 Cases are proposed to be jointly
administered under the caption and case number, Fred’s, Inc., et al., Case No. 19-11984 (Jointly Administered).
The Debtors continue to operate
their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors have filed a series of motions with the Bankruptcy Court (collectively, the “First Day Motions”) seeking, among other things, authorization to continue
paying employee wages and salaries and continue providing employee benefits without interruption, and certain other customary relief.. The Company expects that the Bankruptcy Court will approve these requests. During the Chapter 11 Cases, the
Company intends to pay suppliers in full for all goods and services provided after the filing date as required by the Bankruptcy Code.
The Company has
commenced going out of business sales at all retail locations, which are expected to close over the next 60 days. The Company expects to continue fulfilling pharmacy prescriptions at most of its pharmacy locations, while it continues to pursue the
sale of its remaining pharmacy assets as part of the Bankruptcy Court supervised proceedings.
All documents filed with the Bankruptcy Court are available
for inspection at https://dm.epiq11.com/Freds. Additionally, the Company has established a toll-free Restructuring Information Hotline for employees, suppliers, landowners, investors, and other interested parties, at (855) 543-5393.
Debtor-in-Possession
Financing
On the Petition Date, the Company filed an agreed to form of Senior Secured Superpriority Debtor-In-Possession Credit Agreement (the “DIP Credit Agreement”), by and among the Debtors, Regions Bank, in its capacity as administrative agent (the “DIP Agent”), co-collateral agent and lender and Bank of America, N.A., in its capacity as co-collateral agent and lender (Bank of America, N.A. and Regions Bank in their capacities as
lenders, the “DIP Lenders”). In connection with the First Day Motions, the Debtors have filed a motion seeking, among other things, interim and final approval of the DIP Credit Agreement. The DIP Credit Agreement, if approved by the
Bankruptcy Court, would contain the following terms:
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a senior secured, first- and super-priority
debtor-in-possession revolving credit facility (the “DIP Facility”) in the aggregate principal amount of up to $35 million subject to the terms and
conditions set forth in the DIP Credit Agreement (the “DIP Loan Commitment”), available upon entry of an interim order of the Bankruptcy Court, in form and substance reasonably acceptable to the DIP Lenders and DIP Agent, approving the DIP
Facility on an interim basis (the “Interim DIP Order”);
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borrowings under the DIP Facility will bear interest at a rate (the “Interest Rate”) per annum equal to
(i) the greater of (a) the prime lending rate, (b) the federal funds rate and (c) LIBOR plus 1.00%, plus (ii) 3.25%, and upon an event of default, an additional 2.00% shall be added to the interest rate;
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the Company will also be required to pay: (i) an unused line fee of 0.50% per annum (payable monthly in
arrears) on the average daily unused portion of the DIP Loan Commitment, (ii) a letter of credit fee equal to the Interest Rate multiplied by the amount available to be drawn under letters of credit (payable monthly in arrears), and
(iii) certain other fees to the DIP Agent, for the benefit of the DIP Agent and the DIP Lenders;
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the maturity of the DIP Facility will be six months after the closing date of the DIP Credit Agreement, subject
to earlier termination upon occurrence of customary defaults (“Termination”);
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proceeds of the loans made under the DIP Facility will be used only for the following purposes: (i) to repay
indebtedness under that certain Amended Revolving Loan and Credit Agreement, dated as of April 9, 2015, as amended, by and among the Company and certain of its subsidiaries, Regions Bank, in its capacity as administrative agent, co-collateral agent and lender and Bank of America, N.A., in its capacity as co-collateral agent and lender (the “Prepetition Revolving Credit Facility”); (ii) to
pay expenses in a budget in form and substance satisfactory to the DIP Lenders (“Budget”) to fund the costs of an orderly liquidation; (iii) to repay certain other fees and expenses; (iv) to repay the obligations under the DIP
Credit Agreement; and (v) certain other limited purposes set forth in the DIP Credit Agreement;
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