(Bloomberg) -- Forma Brands, the bankrupt owner of the Morphe makeup brand, reached an agreement with lenders Jefferies Finance LLC and Cerberus Capital Management to be acquired in exchange for $690 million in debt relief, according to a court filing.

No better bids emerged during the company’s Chapter 11 proceedings, bankruptcy court papers show.

The company, once valued at $2 billion, had a tumultuous stretch over the past few years. Sales hit $400 million in 2019, according to company documents, thanks to partnerships with celebrities and influencers. But the business deteriorated after Morphe cut ties with some of them for inappropriate behavior. Forma Brands entered bankruptcy in January. 

Forma, which generates about 80% of its sales from Morphe, also took a hit from supply chain snarls and reduced consumer demand for color cosmetics. Revenue missed internal planning by about 20% in 2021, according to a December 2021 company document reviewed by Bloomberg News.

Before the slump, product collaborations with internet celebrities such as Jeffree Star, Jaclyn Hill and James Charles — beauty YouTubers with millions of subscribers — regularly sold out in minutes and made up more than 40% of the brand’s revenue between 2016 and 2019, according to the company’s chief restructuring officer.

However, Star was accused of using offensive language in 2020 and allegations of Charles sending sexually explicit messages to minors surfaced in 2021. Morphe later cut ties with both of them. 

The company made attempts to shore up sales with other influencers and celebrities like Emma Chamberlain and Ariana Grande. But the projects struggled as the brand, firmly in distressed territory, stared down a liquidity crunch and potential defaults with its creditors.

Much of 2022 was focused on trimming down its corporate headcount, gutting its budgets for its portfolio brands like Playa Haircare and slimming down Morphe’s retail footprint. In August and September, the company hired restructuring experts. Among them were executives who’ve served on the boards of beleaguered companies like American Apparel and Sears.

During this time, lenders Jefferies and Cerberus provided an additional $18 million of secured loans to buffer Forma’s cash coffers, according to testimony from Forma’s chief restructuring officer. But as the months went by, executives soon realized that an out-of-court restructuring would prove futile. 

In early January, the company closed all of Morphe’s US stores — about 20 in total. Then it filed for Chapter 11 bankruptcy about a week later.  

As the company tries to bounce back, Morphe will have to wade through a consumer base that is more apathetic to celebrity-backed brands. Another hurdle is that shoppers have been shifting purchases to skincare from the brand’s core of color cosmetics.

--With assistance from Jeremy Hill.

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