On March 23, 2015, Karmaloop, Inc., and one of its affiliates, KarmaloopTV, Inc., filed voluntary petitions under chapter 11 of the Bankruptcy Code in Delaware. Karmaloop is based in Boston Massachusetts. The cases are docketed as case 15-10635, and have been assigned to The Honorable Kevin Gross.
The Declaration of Brian L. Davies, Jr. was filed in support of the petitions and various first-day motions. Mr. Davies is the Managing Director at CRS Capstone Partners, LLC, and is currently engaged as the Chief Restructuring Officer of the debtors. Mr. Davies had previously served as the interim CFO for Karmaloop.
According to Mr. Davies’ declaration, Karmaloop was founded in 1999 and “specializes in the sale of global streetwear fashion and culture.” According to Mr. Davies, the debtors’ businesses “have fallen victim to the shift in retail purchasing that is occurring, especially among retailers in the young adult age bracket, as such consumers have moved away from purchasing traditional brands.” Mr. Davies also cites to lack of capital, inability to fully adapt to business strategies that result in better margin opportunities, and over-ambitious expansion efforts, as reasons for the debtors’ financial crisis.
The Davies Declaration notes that the debtors are in default under their prepetition senior facility. As a result of the “rapidly deteriorating liquidity position,” the debtors were forced to file chapter 11 with a goal of salvaging their brands and business through a going concern sale. To meet those objectives, Mr. Davies indicates in his declaration that the debtors’ prepetition senior lenders have proposed to provide debtor-in-possession financing.
In addition to the senior debt facility, the debtors have two levels of junior secured debt, according to Mr. Davies. Approximately $10 million is owed to Eastward Capital Partners V, L.P., and another $15 million of debt owed to other junior and subordinated secured lenders. In addition to certain trade debt, the Debtors also owe certain creditors unsecured amounts on promissory notes and loans. These total approximately $22 million.
ComCap Acquisition LLC, which is an affiliate of one or more of the pre-petition senior lenders, has agreed to act as stalking horse for the proposed 363 sale, according to Mr. Davies.