Avon Products Inc. filed for Chapter 11 in bankruptcy court in Wilmington, Del., “to address its debt and legacy talc liabilities,” the company announced on Aug. 12.
The company’s operating businesses outside the US are not a part of the Chapter 11, with the company saying, “It is business as usual in Avon’s international markets.”
Brazil-based Natura &Co., which acquired Avon in 2020, has entered into an agreement to purchase the equity interests in Avon’s non-US operations for $125 million in the form of a credit bid, subject to a court-supervised auction process. Natura has also committed up to $43 million in debtor-in-possession financing (DIP) that, subject to court approval, will provide sufficient liquidity to fund the company’s obligations during the sale process.
The company is a US-based non-operational holding company of the Avon beauty brand. It does not currently sell any products in the US, the company said, noting that while it divested its North American business in 2016, it remains the holding company of the brand’s non-US operating entities.
The company specified that the Avon Company, which is the Avon brand in the US that is currently owned by LG Household & Health Care Ltd., is not affiliated with any other Avon entity and is not part of the Chapter 11 filing.
The company remains on the hook for talc liabilities, however, arising from products sold by the US unit prior to the divestment.
According to the first-day declaration in the case filed by the company’s chief restructuring officer, Philip Gund, the company has roughly $78.1 million in talc claims currently outstanding against it, comprised of $7.6 million in outstanding settlement payments, a $24.5 million jury verdict in Illinois and a $46 million jury verdict in California that is currently under appeal.
Gund stated, however, that as of the petition date, and “despite a significant effort to resolve cases,” the company has 386 additional talc-related lawsuits pending against it. According to Gund, the company has spent more than $225 million on defending lawsuits and settlement payments.
“Although the debtors believe the talc claims are without merit, the debtors do not have sufficient liquidity to litigate and/or settle hundreds of cases and expect that the number of cases filed against the debtors will only continue to increase absent a permanent solution,” Gund said.
Leaving aside the talc liability, the company’s funded debt obligations total roughly $1.294 billion, the lion’s share of which, $1.271 billion, is owed to the Natura Group. There is roughly $22.7 million in unsecured bonds held by third parties.
In addition to the stalking horse bid and DIP financing, the company and Natura also agreed to resolve potential claims the company may have against Natura in connection with various prepetition sale and financing transactions, including potential avoidance actions.
Under the settlement, Natura will, among other things, provide the company with $30 million immediately to be used to administer the Chapter 11 and for distributions to creditors, and will waive about $530 million in secured debt principal owed to it, leaving in place $225 million in retained secured claims and about $400 million in retained unsecured claims.
With the stalking horse bid, DIP and settlement agreement in place, Gund said the company would use the Chapter 11 proceeding to seek higher and better offers, develop a reorganization plan, “and work cooperatively with the representatives of the talc claimants and other creditors for the equitable resolution of their legacy talc claims.”
As for milestone deadlines, the DIP requires, among other things, bankruptcy approval of the settlement with Natura within 65 days of the petition date, or by Oct. 17; a bid deadline within 67 days of the petition date, or by Oct. 19; court approval of a sale within 77 days of the petition date, or by Oct. 29; and completion of a sale within 85 days of the petition date, or by Nov. 5.
The case number is 24-11836.
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