(Bloomberg) — A committee of unsecured creditors to Forever 21 Inc.’s US operator said they are “aggressively investigating” all deals made by the retailer before it filed for Chapter 11, including JCPenney’s acquisition of the operator’s parent Sparc Group.
The acquisition “joined and obligated” Forever 21 and certain affiliates to pay JCPenney’s existing debt, the committee alleged in a Thursday court filing. The Forever 21 operator filed bankruptcy last month with about $1.6 billion in funded debt obligations, according to court documents.
The unsecured creditors committee said it would investigate the transaction as part of a broader written objection to the company’s request to tap lenders’ cash. The group said it is opposing terms in the company’s request that would give its lenders liens or claims to potential legal actions against Forever 21 or its backers.
Sparc, which operated Forever 21, Aeropostale and other fashion brands, announced in January that it had merged with JCPenney to form a new company, Catalyst Brands. Forever 21’s intellectual property is owned by Authentic Brands Group, which licensed the brand to the retail operating company that filed bankruptcy, according to court documents.
Representatives for Forever 21’s bankrupt operator, Authentic Brands Group and Catalyst Brands didn’t immediately respond to requests for comment on Friday.
The committee’s Thursday’s court filing said vendors and other unsecured creditors will be “net losers” in part because the bankrupt operator appears “to have sold their valuable Forever 21 intellectual property assets” prior to the Chapter 11 case.
The creditor group also alleged Forever 21’s operator “extracted significant discounts” on goods shipped just before the March bankruptcy filing, even though those claims would be entitled to full payment under the bankruptcy code. Other large vendors are holding a significant amount of Forever 21-branded inventory that they’ve been unable to resell, the committee said.
Forever 21, a fashion brand targeting young women founded in 1984, is also liquidating all US stores. The operator earlier disclosed to court that the projected recovery for secured lenders could be as low as between 2% and 3%.
The company’s next bankruptcy hearing is scheduled for Tuesday.
The case is F21 OpCo LLC, number 25-10469, in the US Bankruptcy Court for the District of Delaware.
–With assistance from Eliza Ronalds-Hannon.
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