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Law360 (April 28, 2020, 7:00 PM EDT) -- The parent company of salon chain Hair Cuttery received permission Monday from a Maryland bankruptcy judge to move forward with plans to sell its assets as a going concern by the end of May.
Under the approved bidding procedures order, Creative Hairdressers Inc. will head toward a May 21 bid deadline with a stalking horse offer from post-petition lender HC Salon Holdings Inc., which will credit bid the bulk of its $40 million debtor-in-possession financing package and assume some liabilities.
The court also granted interim approval for the DIP loan, which made $3.5 million of the $5 million in new money loans available to the debtor ahead of a hearing May 11 to consider final approval of the package. The remainder of the facility comes in the form of a roll-up of prepetition debt, which received approval at Monday's hearing.
The approved procedures governing the sale call for a deadline of May 21 for competing bidders to submit their offers and scheduled a May 28 hearing to consider a sale to the winning bidder.
Creative Hairdressers filed for bankruptcy protection April 23 after being forced to shut down all 800 of its salons and lay off its more than 10,000 workers in response to widespread business closure mandates enacted by state governments to deal with the COVID-19 pandemic, according to a first-day declaration from Chief Operating Officer Phil Horvath.
Creative Hairdressers, founded in 1974 by Dennis Ratner and Ann Ratner, operates salons under the Hair Cuttery, Bubble and Cielo banners, the declaration said.
Already in the middle of a business restructuring period, Creative Hairdressers was hit with a double whammy of increased competition followed by the global outbreak of the coronavirus, Horvath said.
In fall 2019, the debtor engaged Carl Marks Advisors to help it identify areas where it could cut costs and increase profitability, including by closing underperforming locations and reducing employee count where necessary, the declaration said.
"The efforts that [Creative Hairdressers] and its advisers began implementing started showing promise, as [Creative Hairdressers'] guest traffic stabilized and its per ticket comparable sales increased," Horvath said. "Until the impact of the COVID-19 crisis, [Creative Hairdressers] was outperforming its business plans and its comparable sales had increased over the same time last year."
The changes set Creative Hairdressers on a path toward increased earnings for 2020, after it brought in $440 million in revenue in 2019, according to the declaration.
Creative Hairdressers also retained investment banker Houlihan Lokey in 2019 to explore raising capital or refinancing its existing debt, while also exploring a sale to a strategic buyer after new financing proved elusive. Dennis Ratner provided $7 million in additional lending last year and pledged $4 million of securities-backed credit support to bridge the debtor through its marketing efforts.
In March, Creative Hairdressers was unable to meet $2.9 million in payroll obligations due to the mandated closures and the elimination of its revenue stream, according to Horvath.
Creative Hairdressers carried about $36 million of secured debt into bankruptcy owed to HC Salons.
Creative Hairdressers is represented by Richard Marc Goldberg and Joel I. Sher of Shapiro Sher Guinot & Sandler LLP.
The case is In re: Creative Hairdressers Inc. et al., case number 20-14583, in the U.S. Bankruptcy Court for the District of Maryland.
--Editing by Stephen Berg.
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