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Law360 (May 1, 2020, 11:30 AM EDT) -- Retail costume maker Rubie's Costume Co. Inc. filed for Chapter 11 in a New York bankruptcy court, saying the COVID-19 pandemic left it unable to secure the new financing it needs to escape a cash shortage brought on by years of declining sales.
In a first-day declaration late Thursday, Rubie's President Marc Beige — touting the firm as one of the world's largest costume makers — said despite years of sales declines and other problems, the company is "well positioned" to respond to the changes in consumer spending created by the coronavirus. But he added that the virus' impact on global lending markets left Rubie's unable to get the financing it needed to get past an immediate liquidity shortage.
"The Bank Group has declined to provide continued financing and the debtors' efforts to obtain replacement financing on an asset based lending structure have been slowed by the crisis," Beige said in the declaration. "Notwithstanding, ... the debtors are optimistic that a financing package will become available for them over the next 60 to 90 days."
Beige said the company makes costumes under licenses from Marvel, Warner Brothers, Nickelodeon, Disney and Lucasfilm for sale by retailers including Amazon, Target, Walmart and Party City.
"Historically, the company's growth has been driven by the strength of these exclusive third-party licensing agreements, as well as rising interest among both adults and children in dressing up as authentic movie and television characters," Beige said.
The company also makes nonlicensed costumes and operates four brick-and-mortar stores in New York and an e-commerce business.
The company has more than $150 million in secured lending facilities and about $24.5 million in unsecured liabilities, he said.
Beige said general shifts in the business environment in recent years have caused a decline in sales — with a more than 14% drop in net sales from 2018 to 2019 — and that the company has seen a number of its major trading partners go bankrupt and many of its licensors switch from granting exclusive to nonexclusive licenses.
Over the course of 2019, Beige said, the company began implementing cost-cutting measures and negotiating for a new lending facility. He said the negotiations floundered in April, with lender Wells Fargo pulling out due to the coronavirus-induced condition of the lending market, causing Rubie's to file Chapter 11 to avoid what he called a "short term" liquidity crisis.
Beige said the company remains sound. Though Rubie's expects an 18% drop in sales for 2020 due to the coronavirus, he said it expects to see a $10 million increase in net sales revenue thanks to its 2019 cost-cutting measures. He said he believed the company can secure new financing within four months.
Rube's did not immediately respond to requests for additional information Friday.
Rubie's is represented by Edward J. LoBello, Howard B. Kleinberg and Jordan D. Weiss of Meyer Suozzi English & Klein PC and Frank Oswald and Brian Moore of Togut Segal & Segal LLP.
The case is In re: Rubie's Costume Co. Inc., case number 20-71970, in the U.S. Bankruptcy Court for the Eastern District of New York.
--Editing by Marygrace Murphy.
Update: This story has been updated with more information from the declaration.
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