Karmaloop Restructures After Chapter 11 Filing

Karmaloop Inc. has launched a formal restructuring as part of a 363 sale process.

The restructuring and new funding provides an opportunity to address existing debt that the men's streetwear retailer incurred to support the launch of four new business divisions and development of television content between 2011 and 2013. Over time, these ventures proved not to be economically feasible and the debt that remained as a vestige of these past efforts was hindering working capital for the core business. The main property, Karmaloop.com, has continued to dominate the streetwear space, with more than 500 brands and close to 4 million monthly unique visitors.

Subject to court approval, Karmaloop has secured debtor-in-possession "DIP" financing from a lending group led by Comvest Partners to support reorganization efforts and the forthcoming §363 sale process. The Comvest-led group has also submitted an offer to convert a portion of its debt to equity to own the business should no higher or better offer emerge through the Section 363 sale process. Karmaloop has retained retail and consumer products investment bank specialist Consensus to assist in marketing the company for sale.

"Comvest is a big believer in Karmaloop and we are excited to partner with management to restructure and grow the business," said Daniel Lee, managing director of Comvest Partners. "The Karmaloop team has built a unique, market-leading platform through its 15-year history, and will now be poised to continue building the company without the strain of debt."

"The Karmaloop brand is solid and powerful, we simply have been carrying too much debt from past ancillary business startups that were discontinued," noted Karmaloop CEO and founder Greg Selkoe. "We're excited to be able to restructure Karmaloop to focus on and enhance our core business strategy and continue to execute on our plans for profitability. This restructuring will assist with our strategic move to vendor direct."

Karmaloop's eponymous website will continue full operations during this process, as will the company's wholly-owned European website StreetAmmo, the Company's PLNDR division, its off-price members-only sale section, and its Kazbah division, the company's underground brand marketplace.

"Karmaloop  provides a buyer with the unique opportunity to immediately gain access to an established online platform with real scale that has an unusually passionate customer base," added Consensus's CEO Michael O'Hara. "Karmaloop has few if any direct competitors, and its core demographic is increasingly influential and affluent."

Karmaloop filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The company received an investment of $3 million led by Comvest Partners along with co-lender CapX Partners to support the restructuring.
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