Rock-Star Outfitter John Varvatos’s Firm Files for Bankruptcy

(Bloomberg) -- John Varvatos Enterprises Inc., a men's fashion brand favored by rock stars and celebrities such as Dave Matthews and Ben Affleck, sought bankruptcy protection from creditors as the fallout from the Covid-19 pandemic derailed a corporate comeback effort.

The New York-based company filed for Chapter 11 as part of a plan to sell itself for an undisclosed amount to an affiliate of Lion Capital LLC, one of its creditors. Varvatos listed more than $140 million of debt in court filings in Delaware Wednesday.

Varvatos earned his chops at fashion lines such as Ralph Lauren and Calvin Klein before starting his own company. He'll remain chairman and chief creative officer of the reorganized company, according to the court filings.

The designer started his namesake brand in 2000, “combining distinctive fabrics, heritage-inspired silhouettes, and artisanal details to embody a modern classic aesthetic with an edge,” Joe Zorda, the company's chief financial officer, said in the filings. The 30-store chain's headquarters is in Manhattan at the former home of legendary music club CBGB. All the stores are currently closed due to the Covid-19 outbreak.

Varvatos tries to appeal to rockers with items such as single-button dinner jackets, laceless Chuck Taylor sneakers made by Converse Inc. and classic black-leather jackets. And it works. He's dressed some of the music world's top acts including Bruce Springsteen, Tupac Shakur, Bob Dylan, Iggy Pop, Alice Cooper, Cheap Trick, ZZ Top, Dave Matthews, The Roots and Green Day.

He also teamed up with pop star Nick Jonas last year to offer Villa One tequila in partnership with Stoli Group LLC USA.

Varvatos's company started hitting some off-key notes in 2015 when managers put in place “cost-cutting measures that involved altering the brand's clothing to attract customers in the mass market, which didn't resonate with the brand's existing customers,” Zorda said in a filing.

In 2017, Varvatos sought to sell the chain to Authentic Brands Group -- which owns Frederick's of Hollywood -- but Lion Capital, the company's controlling investor -- nixed the deal, according to the New York Post.

Things got worse three years later when Nordstrom Inc. yanked some of Varvatos's brands from its stores, resulting in a $2.6 million gross profit decline from 2018 to 2019. The company launched an internal reorganization, bringing in new management and pushing landlords to cut lease payments, Zorda said.

The reorganization was showing promise until the coronavirus epidemic hit earlier this year, Zorda said. The company was forced to close all its stores March 18 and laid off more than 200 workers, 76% of its workforce.

While Varvatos is selling some merchandise online, revenue from that stream isn't enough to pay debts as they come due, including rents totaling approximately $2.1 million per month and the majority of the inventory deliveries it received for the spring 2020 selling season, Zorda said.

Varvatos shopped the company around and L/H Cayman -- the Lion Capital affiliate -- came in with the best bid, Zorda said. That offer still must be approved by U.S. Bankruptcy Judge Mary Walrath.

The case is In RE John Varvatos Enterprises Inc., 20-bk-11043-MFW, U.S. Bankruptcy Court, District of Delaware (Wilmington)

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