Dive Brief:
- Multiple suppliers to the Canadian lingerie retailer La Senza filed papers on Friday asking that the company be put in Chapter 7 bankruptcy.
- The suppliers had claims totaling more than $9.3 million, according to documents in a federal bankruptcy court in Delaware.
- L Brands, owner of Victoria's Secret, sold La Senza in 2018 to private equity firm Regent LP. According to one of La Senza's suppliers, L brands agreed to guarantee millions of dollars worth of payments during a period ending in May of this year. La Senza, L Brands and Regent did not immediately respond to requests for comment.
Dive Insight:
MGF Sourcing, one of the suppliers to file the involuntary bankruptcy papers against La Senza, said it was central to L Brands' deal to sell the retailer. La Senza primarily sells in Canada and has a small U.S. brick-and-mortar presence.
MGF's vice president of finance said in court papers that the deal hinged on his company continuing to source products for La Senza. To persuade them to do so, La Senza was supposed to get a letter of credit — worth half of La Senza's inventory value — to help guarantee payment for goods under the agreement.
L Brands was also party to the deal, and was to guarantee La Senza's payment to MGF for goods even after L Brands sold off the company. Specifically, L Brands was to guarantee $20 million in orders placed between June 2019 and May 2020, according to MGF.
La Senza's sales were in decline when L Brands sold it. The retail conglomerate did not disclose the price. L Brands recorded a loss of $99 million on the sale, according to a 10-K, in part due to $45 million translation adjustments around currency and the transfer of working capital and store assets to Regent. L Brands said it sold La Senza to increase its shareholder value and focus on L Brand's core business.
After selling La Senza, L Brands said it would keep providing logistical and technological support and merchandise sourcing for up to a year and a half after the sale. According to the 10-K, L Brands guaranteed $76 million in payments on leases, which expire at different times through 2028.
Shortly after L Brands sold the brand, La Senza began to default on its obligations under its agreement with MGF, the supplier alleged in court papers. MGF says La Senza never produced the letter of credit. As a workaround, MGF agreed that La Senza could instead put millions in an escrow account to help secure payment for goods. But La Senza never funded the accounts, MGF alleged.
The supplier kept shipping goods to La Senza, as the lingerie seller was up to date on payments for the goods it ordered. That ended in October, when MGF alleged La Senza had become delinquent on $10 million in goods. The supplier said that by November "it became clear that La Senza had no intention of curing its breaches" of the agreement, paying for goods, or sharing information with MGF to provide financial assurance.
At the time of the court filing, the supplier alleged La Senza was delinquent on over $41.7 million of payments for goods. It's unclear what if any of that amount L Brands would be responsible for. The retailer, according to MGF, has been communicating less and less, and failed to complete a request to return inventory.
