Tuesday Morning Corp. has entered into an agreement to secure $32 million in convertible debt financing to help initiate a plan to turnaround the off-price retailer.
The debt financing comes from a special purpose vehicle formed by Retail Ecommerce Ventures LLC, owner of a consumer brands portfolio that includes Pier 1 Imports, Linens ‘n Things, Stein Mart and Modell’s Sporting Goods, and Ayon Capital, LLC. In addition, members of Tuesday Morning’s management team, including CEO Fred Hand, are providing $3 million in convertible debt financing.
The proceeds from the parties’ investments will go toward strengthening the Tuesday Morning balance sheet and allow the company to begin executing an omnichannel strategy, which will now include an e-commerce presence and digital activations to complement the company’s store footprint over the long term. The transaction’s terms also provide access to REV’s fulfillment network, infrastructure and systems and technology and e-commerce capabilities as well as a new licensing agreement that will allow Tuesday Morning to sell Pier 1 products.
In addition, the agreement calls for the reconstitution of the Tuesday Morning board of directors with REV and Ayon having their designees comprise a board majority, the company noted. So, the board will include five directors designated by the special purpose vehicle, three independent directors acceptable to the SPV and the board, and Hand, who also will continue as CEO. No changes to the management team were announced at this time.
The transaction includes the purchase by the SPV of $7.5 million in aggregate principal amount of FILO C Term Loan Notes due December 31, 2027, and $24.5 million in aggregate principal amount of junior secured exchangeable notes due December 31, 2027. As noted, management team members will purchase $3 million of the junior secured exchangeable notes. In addition to providing liquidity to support the company’s ongoing operations, proceeds of the transaction are expected to repay a portion of Tuesday Morning’s borrowings under its ABL revolving credit facility and $7.5 million of the company’s currently outstanding first-in-last-out term loans, in addition to closing costs of the transaction.
Still, Pulse Ratings analyst Dennis Cantalupo noted that the transaction, and the roughly $27.5 million included, won’t be enough by itself to stabilize a Tuesday Morning that’s burning cash and may have a weakened relationship with customers.
In announcing the deal, Hand said, “We believe this milestone transaction will strengthen our financial position and provide sufficient liquidity to execute on our strategic plan, allowing us to maintain strong relationships with our valued partners and elevate offerings for our customers. We look forward to the partnership with REV and Ayon.”