ASNA Ascena Retail Group Inc

Voluntary Petition for Reorganization

On July 23, 2020 (the “Petition Date”), Ascena Retail Group, Inc. (the “Company” or “Ascena”) and certain of its subsidiaries (collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”). The Debtors have filed a motion with the Bankruptcy Court seeking to jointly administer the Chapter 11 Cases under the caption In re: Ascena Retail Group, Inc., et al.

The Debtors have filed the Chapter 11 Cases to implement the terms of a Restructuring Support Agreement, dated July 23, 2020 (together with all exhibits and schedules thereto, the “RSA”), by and among the Company and certain of its subsidiaries (each, a “Company Party” and collectively, the “Company Parties”) and members of an ad hoc group of lenders (the “Consenting Stakeholders”) under the Term Credit Agreement, dated as of August 21, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “Prepetition Term Credit Agreement”), among the Company, AnnTaylor Retail, Inc., the lenders party thereto (the “Prepetition Term Lenders”) and Goldman Sachs Bank USA, as administrative agent. The Consenting Stakeholders hold approximately 68% of the borrowings under the Prepetition Term Credit Agreement as of the Petition Date.

The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. The Debtors have filed with the Bankruptcy Court a variety of “first day” motions seeking approval from the Bankruptcy Court for various forms of customary relief to allow the Company to meet necessary obligations and fulfill its duties during the restructuring process, including authority to continue payment of employee wages and benefits, honor certain customer and vendor commitments and otherwise manage its day-to-day operations in the ordinary course. Bankruptcy Court filings and information related to the Chapter 11 Cases are available at: http://cases.primeclerk.com/ascena.

Restructuring Support Agreement

On July 23, 2020, prior to commencement of the Chapter 11 Cases, the Company Parties and the Consenting Stakeholders entered into the RSA. Capitalized terms used but not otherwise defined in this “Restructuring Support Agreement” section of this Current Report on Form 8-K have the meanings given to them in the RSA.

The RSA contemplates a restructuring process, to be implemented through voluntary cases under chapter 11 of the Bankruptcy Code, that is expected to significantly reduce the Debtors’ debt and provide increased financial flexibility to enable the Company to continue its focus on generating profitable growth and driving value for customers and stakeholders. Specifically, the RSA provides:

The RSA may be terminated by the Consenting Stakeholders upon the occurrence of certain events set forth therein, including the Bankruptcy Court not having entered the DIP Financing Order on a final basis by the date that is 35 days after the Petition Date, the Bankruptcy Court not having entered the Confirmation Order by the date that is 110 days after the Petition Date, the Plan Effective Date not having occurred by the date that is 130 days after the Petition Date and the DIP ABL Facility (as applicable) being terminated and accelerated in accordance with its terms. A Company Party may also terminate the RSA upon the occurrence of certain events set forth therein, including in the event the board of directors, board of managers or such similar governing body of any Company Party determines, after consulting with counsel, (i) that proceeding with any of the transactions described therein would be inconsistent with the exercise of its fiduciary duties or applicable law or (ii) in the exercise of its fiduciary duties, to pursue an Alternative Restructuring Proposal.

Although the Company Parties intend to pursue the restructuring contemplated by the RSA, there can be no assurance that the Company Parties will be successful in completing a restructuring or any other similar transaction on the terms set forth in the RSA or at all. In particular, the transactions contemplated by the RSA are subject to approval by the Bankruptcy Court, among other conditions.

As a condition to the Consenting Stakeholders entering into the RSA, AnnTaylor Loft GP Lux S.à r.l. and AnnTaylor Loft Borrower Lux SCS, each of which are wholly owned indirect subsidiaries of the Company (the “LuxCos”), entered into a Conditional Assignment Agreement, dated July 23, 2020 (the “Conditional Assignment Agreement”), with Alter Domus (US) LLC, in its capacity as incremental collateral agent (the “Agent”) on behalf of the Consenting Stakeholders and each of the other secured parties under the Prepetition Term Credit Agreement. Pursuant to the Conditional Assignment Agreement, upon the occurrence of a “Trigger Event,” the LuxCos have agreed to irrevocably transfer to the Agent all of their respective personal property and other assets, including intellectual property, and trademark rights, and the Agent has agreed to grant Annco, Inc., an indirect subsidiary of the Company, a license to continue to use such trademark rights. A “Trigger Event” under the Conditional Assignment Agreement includes the occurrence of any of following: (i) any Company Party or either of the LuxCos failing to perform or observe certain provisions set forth in the RSA, the Backstop Commitment Letter, the DIP Term Credit Agreement (as defined below) or the Conditional Assignment Agreement, which, in each case, is both adverse to the interests of the Consenting Stakeholders and remains uncured for ten business days after notice is provided to the Company Parties as set forth therein, (ii) a Consenting Stakeholder Termination Event (as defined in the RSA) and termination of the RSA in accordance with the terms thereof, (iii) an acceleration of the obligations arising under the DIP Term Credit Agreement in accordance with such agreement or (iv) a Change of Control (as defined in the Conditional Assignment Agreement).

The foregoing description of the RSA and the Conditional Assignment Agreement is not complete and is qualified in its entirety by reference to the RSA and the Conditional Assignment Agreement, which will be filed as exhibits to an amendment to this Current Report on Form 8-K and are hereby incorporated by reference in this Item 1.03.

Backstop Commitment Letter for the DIP Term Facility

On July 23, 2020, prior to commencement of the Chapter 11 Cases and as contemplated by the RSA, the Company entered into the Backstop Commitment Letter with certain of the Consenting Stakeholders or their affiliates (the “Backstop Parties”) pursuant to which the Backstop Parties have committed to provide the Company with a superpriority senior secured debtor-in-possession term loan credit facility of up to $311.8 million in the aggregate (the “DIP Term Facility” and the governing credit agreement, the “DIP Term Credit Agreement”) consisting of (i) up to $150.0 million in new money term loans (the “New Money DIP Loans”) and (ii) up to $161.8 million of certain prepetition term loan obligations that will be rolled into the DIP Term Facility (the “Roll-Up DIP Loans” and, together with the New Money DIP Loans, the “DIP Term Loans”), on the terms and conditions set forth therein, including the approval of the Bankruptcy Court, which has not been obtained at this time. The proceeds of the New Money DIP Loans may be used, among other things, to pay certain costs, fees and expenses related to the Chapter 11 Cases and to prepay or repay up to $50.0 million of borrowings under the ABL Credit Agreement (to the extent applicable and as defined in the DIP Term Credit Agreement), in all cases, subject to the terms of the DIP Term Credit Agreement.

Loans under the DIP Term Facility will bear interest at a rate per annum equal to (i) in the case of a base rate loan, the base rate (which is subject to a floor of 2.00%) plus 10.75% or (ii) in the case of a Eurodollar rate loan, the adjusted London interbank offering rate (which is subject to a floor of 1.00%) plus 11.75%. Upon the occurrence and during the continuance of an event of default under the DIP Term Facility, the Company will be subject to a default rate of interest equal to 2.00% above the rate otherwise applicable.

Each of the Prepetition Term Lenders, including the Backstop Parties, will have the right to participate its ratable share of 50% of the DIP Term Facility and the Exit Term Facility (as defined below). Pursuant to the Backstop Commitment Letter, the Backstop Parties will provide 50% of the DIP Term Loans and loans under the First Out Exit Term Facility and provide any DIP Term Loans and loans under the First Out Exit Term Facility not provided by other Prepetition Term Lenders (the “Backstop Commitments”). As consideration for the Backstop Commitments and other agreements of the Backstop Parties under the Backstop Commitment Letter and under the RSA, the Company will pay the Backstop Parties a cash premium equal to $7.5 million in the aggregate upon the funding of the New Money DIP Loans. If the RSA is terminated prior to the funding of the DIP Term Facility, the Company will pay the Backstop Parties a cash premium equal to $7.5 million in the aggregate on the RSA termination date. The Backstop Commitment Letter and the Backstop Commitments will terminate upon the occurrence of certain events set forth therein, including the termination of the RSA.

The DIP Term Facility will convert (the “Conversion”) on a dollar-for-dollar basis into first out term loans (the “First Out Exit Term Facility”) upon the satisfaction of certain conditions set forth in the Backstop Commitment Letter, the DIP Term Credit Agreement and the exit facility term sheet attached to the Backstop Commitment Letter, including the Plan Effective Date (as defined in the RSA) having occurred. Also upon the satisfaction of such conditions, the Prepetition Term Lenders, including holders of DIP Term Loans, will receive their pro rata share of $88.2 million of last out term loans (the “Last Out Exit Term Facility” and, together with the First Out Exit Term Facility, the “Exit Term Facility”).

If, after the DIP Term Facility has been funded, the Conversion does not occur, the DIP Term Loans will be repaid in cash on their stated maturity, which will be six months after the effective date of the DIP Term Credit Agreement, subject to earlier termination upon the occurrence of certain events specified in the DIP Term Credit Agreement, which includes dismissal of the Chapter 11 Cases or a sale of all or substantially all of the Debtors’ assets. In addition, in such case, or upon the Debtors selling all or substantially all of their assets, the Company will pay the DIP Term Loan lenders a cash premium equal to 11.23% of the DIP Term Loans so repaid on the date on which the DIP Term Loans are repaid in full. Also in such event, as discussed above, pursuant to the Backstop Commitment Letter, the Company will pay the Backstop Parties a cash premium equal to $7.5 million in the aggregate on the RSA termination date.

The foregoing description of the Backstop Commitment Letter, the proposed DIP Term Facility and the proposed Exit Term Facility does not purport to be complete and is qualified in its entirety by reference to the Backstop Commitment Letter, which will be filed as an exhibit to an amendment to this Current Report on Form 8-K and is hereby incorporated by reference in this Item 1.03, and to the credit agreements governing such facilities, as may be approved by the Bankruptcy Court.