🚜New Chapter 11 Bankruptcy Filing - Tea Olive I LLC (d/b/a Stock+Field)🚜

Tea Olive I LLC (d/b/a Stock+Field)

The #retailapocalypse is indiscriminate. Sometimes it likes to take down big prey like J.C. Penney or J. Crew but other times it just wants to snag some low hanging fruit via the path of least resistance. That means that a number of retailers those of us in our bubbles in major coastal cities have maybe never heard of will find their way into a bankruptcy court. And a bankruptcy court outside of Delaware or Texas no less.

Like Tea Olive I LLC (d/b/a Stock+Field) for instance. The Minnesota-based “farm, home and outdoor retailer” operates 25 stores across the mid-West. It only sells “a small amount of products…online.” While that’s obviously pretty lame, this place seems like a smorgasbord of fun: in one fell swoop you can go in and pick up, among other things, some dog food, a kayak, some beekeeping equipment, some lawn fertilizer, workwear and apparel, a grill, paint, a new HVAC unit, auto parts, food, toys and firearms! A Christmas bonanza, this place must be! Earl Jr. can get himself a little toy gun while Big Earl can get himself a grenade launcher and AR-15. Everybody wins!

Well, not everybody. Unfortunately, the place is liquidating, a sad post-holidays result for the 1,000 full and part-time employees that work there.

In 2018, the debtor did $176mm of revenue and adjusted EBITDA of $5.1mm. In 2019, to differentiate itself from other unrelated “Big R” entities in the US, the debtor changed its name from “Big R Stores” to “Stock+Field” expecting some short-term drops in performance but expecting those drops to be mere blips on the road to a stronger future. And, in fact, the company did suffer a small drop in performance: it did $173.9mm in revenue and $1.6mm in adjusted EBITDA. 2020 was supposed to be the year.

Spoiler alert: it wasn’t. Not for literally anybody on the planet (well, other than maybe Elon Musk, Joseph Biden, fans of Brexit…ah…you get the idea…there are exceptions to literally everything). Per the company:

In the beginning of 2020, the Debtor continued its rebranding efforts and expected the business to grow throughout the year. However, the Covid-19 pandemic unexpectedly upset all expectations for 2020. All of the Debtor’s 25 stores were open under strict capacity and operating hour restrictions due to the pandemic. Additionally, the pandemic itself has altered the shopping behaviors of the Debtor’s consumers, with some customers not feeling comfortable entering physical stores to shop. While the Debtor sells some products online, the majority of its products are sold solely in stores.

😬Apparently they didn’t get the omni-channel memo. For fiscal year 2020, therefore, the debtor estimates $141.5mm in revenue and -$2.2mm in adjusted EBITDA. Consequently, the company hired restructuring professionals to pursue a financing options and/or a sale. But had no luck. The company then hired Tiger Capital Group to pursue liquidation. Get ready for…

The debtor owes $29.7mm to its senior secured lender, CIT Northbridge Credit LLC pursuant to a credit agreement entered into in early March 2020. Query how seriously the various parties were taking COVID-19 given the timing. Still, the debtor estimates its inventory value to be $45.6mm and it also has $734k of A/R and prepaid assets against $26.5mm in trade debt (inclusive of approximately $1mm in 503(b)(9) claims).* The size of general unsecured creditor recoveries — certain to be less than 100% — will definitely depend on whether there are shoppers out there who are willing to risk contracting COVID-19 simply to hit the bid on that alleged $45.6mm in inventory value.

One question that also arises with retail cases is what happens with gift cards? It appears the debtor intends to honor outstanding gift cards until February 8, 2021. Hurry out, y’all, and get yourself some new toys and firearms just in time for the Civil War.

*For the uninitiated, the Bankruptcy Code provides that suppliers of goods delivered to a debtor in the ordinary course of business in the 20 days prior to a petition date be allowed as administrative expenses.

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Date: January 10, 2020

Jurisdiction: D. of Minnesota (Judge Fisher)

Capital Structure: $29.7mm funded secured debt (Second Avenue Capital Partners LLC)

Company Professionals:

• Legal: Fredrikson & Byron PA (Clinton Cutler, James Brand, Steven Kinsella, Samuel Andre)

• Restructuring Advisor: Clear Thinking Group (Michael Wesley)

• Liquidator: Tiger Capital Group LLC

• Investment Banker: Steeplechase Advisors LLC (James Cullen, Dan O’Rourke, David Burke, Nate Anderson, Eddie Doherty, Amy Rose)

• Claims Agent: Donlin Recano (Click here for free docket access)

Other Parties in Interest:

• Secured Loan Agent: Second Avenue Capital Partners LLC

• Secured Lender: CIT Northbridge Credit LLC

  • Legal: Riemer & Braunstein LLP (Steven Fox)

🥾New Chapter 11 Bankruptcy Filing - Stage Stores Inc. ($SSI) 🥾

Stage Stores Inc.

April 10, 2020

Houston-based Stage Stores Inc. ($SSI) marks the second department store chain to file for chapter 11 bankruptcy in Texas this week, following on the heals of Neiman Marcus. With John Varvatos and J.Crew also filing this week, the retail sector is clearly starting to buckle. All of these names — with maybe the exception of Varvatos — were potentially headed towards chapter 11 pre-COVID. As were J.C. Penney Corp. ($JCP) and GNC Holdings Inc. ($GNC), both of which may be debtors by the end of this week. Sh*t is getting real for retail.

We first wrote about Stage Stores in November ‘18, highlighting dismal department store performance but a seemingly successful experiment converting 8 department stores to off-price. At the time, its off-price business had a 9.9% comp sales increase. Moreover, the company partnered with ThredUp, embracing the secondhand apparel trend. While we have no way of knowing whether this drove any revenue, it, in combination with the conversions, showed that management was thinking outside the box to reverse disturbing retail trends.

By March ‘19, the company was on record with plans to close between 40-60 department stores. In August ‘19, it became public knowledge that Berkeley Research Group was working with the company. The company reported Q2 ‘19 results that — the hiring of a restructuring advisor with a lot of experience with liquidating retailers, aside — actually showed some promise. We wrote:

Thursday was a big day for the company. One one hand, some big mouths leaked to The Wall Street Journal that the company retained Berkeley Research Group to advise on department store operations. That’s certainly not a great sign though it may be a positive that the company is seeking assistance sooner rather than later. On the other hand, the company reported Q2 ‘19 results that were, to some degree, somewhat surprising to the upside. Net sales declined merely $1mm YOY and comp sales were 1.8%, a rare increase that stems the barrage of consecutive quarters of negative turns. Off-price conversions powered 1.5% of the increase. The company reported positive trends in comps, transaction count, average transaction value, private label credit card growth, and SG&A. On the flip side, COGs increased meaningfully, adjusted EBITDA declined $2.1mm YOY and interest expense is on the rise. The company has $324mm of debt. Cash stands at $25mm with $66mm in ABL availability. The company’s net loss was $24mm compared to $17mm last year.

Some of the reported loss is attributable to offensive moves. The company’s inventory increased 5% as the company seeks to avoid peak shipping expense and get out ahead of tariff risk (PETITION Note: see a theme emerging here, folks?). There are also costs associated with location closures: the company will shed 46 more stores.

What’s next? Well, the company raised EBITDA guidance for fiscal ‘19: management is clearly confident that the off-price conversion will continue to drive improvements. No analysts were on the earnings call to challenge the company. Restructuring advisors will surely want to pay attention to see whether management’s optimism is well-placed.

As we wrote in February ‘20, subsequent results showed that “management’s optimism was, in fact, misplaced.” Now, three months later, the company is in court.

We should take a second to note that this is a potential sale case. The first day papers, therefore, are meant to paint a picture that will draw interest from potential buyers. And so it’s all about the successful conversion of stores. Indeed, the company asserts that its transformation WAS, in fact, taking hold as it moved beyond the initial small batch of store conversions to a more wholesale approach to off-price. By September 2019, 82 store transitions had been completed. And, to date, 233 department stores have been converted to the Gordmans off-price model (PETITION Note: the company acquired Gordmans out of bankruptcy. The company also deigns to suggest that the stock price increase from under a dollar in January ‘19 to $9.50 in early ‘20 is indicative of the market’s support of the off-price conversion and the potential for success post-conversion — as if stock prices mean sh*t in this interest rate environment.). The company now has 289 off-price stores in total (including the Gordmans acquisition) and 437 department stores.

Enter COVID-19 here. No operations = no liquidity. The company’s conversion plan stopped in its tracks. Like every other retailer in the US, the company stopped paying rent and furloughed thousands of employees. “Combined with zero revenue and uncertainty associated with consumer demand in the coming months, Stage Stores, like so many others, is in the middle of a perfect storm.”

The company’s plan in bankruptcy appears to be to leave open any and all optionality. One one hand, it will liquidate inventory, wind-down operations and close stores. On the other hand, it will pursue a sale process, managing inventory in such a way “…to increase the likelihood of a going-concern transaction and, to the extent one materializes … pivot to cease store closings at any stores needed to implement the going-concern transaction.” To aid this plan, the company will seek court latitude as it relates to post-petition rent. These savings, coupled with cash collateral, will avail the company of liquidity needed to finance this dual-path approach (PETITION Note: the company suggests that, if needed, the company will explore a DIP credit facility at a later time).

We should note that Wells Fargo Bank NA ($WFC) is the company’s lender and has permitted the use of over $10mm for cash collateral. We previously wrote:

Wells Fargo Bank NA ($WFC) is the company’s administrative agent and primary lender under the company’s asset-based credit facility. Prior to Destination Maternity’s ($DEST) chapter 11 filing, Wells Fargo tightened the screws, instituting reserves against credit availability to de-risk its position. It stands to reason that it is doing the same thing here given the company’s sub-optimal performance and failure to meet projections. Said another way, WFC has had it with retail. Unlike oil and gas lending, there are no pressures here to play ball in the name of “relationship banking” when, at the end of the day, so many of these “relationships” are getting wiped from the earth.

Looks like they’re at least providing a little bit of leash here to give the company at least some chance of locating a White Knight that will provide value above and beyond liquidation value (however you calculate that these days)* and keep this thing alive. Which is to say that none of this is likely to give much solace to the staggering $173mm worth of unsecured trade debt here. 😬

Not that the unsecureds should be the only concerned parties here. With first day relief totaling over $2mm, employee wage obligations running potentially as high as $8mm, and high-priced professionals, this thing could very well be administratively insolvent from the get-go.

*Perhaps news coming out of T.J. Maxx (TJX) will help spark interest from a buyer. There are also some potentially valuable NOLs here.

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: $178.6mm RCF (Wells Fargo Bank NA), $47.4mm Term Loan (Wells Fargo Bank, Pathlight Capital LLC)

• Professionals:

  • Legal: Kirkland & Ellis LLP (Joshua Sussberg, Neil Herman, Joshua Altman, Kevin McClelland, Jeremy Fielding) & Jackson Walker LLP (Matthew Cavenaugh, Jennifer Wertz, Kristhy Peguero, Veronica Polnick)

  • CRO: Elaine Crowley

  • Financial Advisor: Berkeley Research Group LLC (Stephen Coulombe)

  • Investment Banker: PJ Solomon LP (Mark Hootnick)

  • Real Estate Advisor: A&G Realty Partners

  • Liquidation Consultant: Gordon Brothers Retail Partners LLC

  • Claims Agent: KCC (*click on the link above for free docket access)

• Other Parties in Interest:

  • RCF Agent: Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Jaime Koff, Brendan Recupero, Paul Bekkar, Steven Fox) & Winstead PC (Sean Davis, Matthew Bourda)

  • Term Agent: Wells Fargo Bank NA

    • Legal: Choate Hall & Stewart LLP (Kevin Simard, Mark Silva) & Winstead PC (Sean Davis, Matthew Bourda)

  • Large equityholder: Axar Capital Management LP

⚾️New Chapter 11 Bankruptcy Filing - Modell's Sporting Goods Inc.

Modell's Sporting Goods Inc.

March 11, 2020

There’s nothing particularly new or interesting about another liquidating retailer — especially when it’s just another in a long line of companies in its business segment to file for chapter 11 bankruptcy. Sorry to be callous: we get that Modell’s Sporting Goods Inc. is a family-owned establishment with 134 stores and thousands of employees. We get that people aren’t shopping at brick-and-mortar locations, that Walmart Inc. ($WMT), Target Inc. ($TGT), Amazon Inc. ($AMZN), and, in this category, Dick’s Sporting Goods Inc. ($DKS) are crushing the competition, and that there’s a “decline in sports team participation among youth and teens.” Here’s the number of tackle football participants over the age of six years old in the United States:

This trend in football, however, is not pervasive. Participation in high school baseball, for instance, is on the rise. Most other major high school sports are pretty static, soccer being an exception as that, too, is increasing in popularity. So, sure, okay. We’ll just take the company’s word for it.

But the company doesn’t just blame the youths for its demise; it blames global warming (“warm winter weather in the Northeastern states, which negatively affected the sales of cold-weather goods and items and overall store traffic…”), the crappy-a$$ New York Knicks and disappointing Philadelphia Eagles (“lower than anticipated sales of licensed goods in the fourth quarter of 2019 based on local professional team performance”), and inventory disruption from creditors who’ve gotten sick and tired of getting regularly screwed over by administratively insolvent retailers.

It doesn’t really blame its model. For instance, it doesn’t have any private label apparel. Nor does it own any of its real estate. It is completely beholden to its vendors and foot traffic at strip malls and shopping malls. It leases everything. Apparel merchandise expenses were roughly $225mm/year and rental expenses totaled approximately $95mm/year, constituting approximately 46% and 19% of gross sales ($490mm), respectively. In addition, it has unionized employees. The company is on the hook (jointly with a non-debtor entity) for a pension plan underfunded by $25.8mm.

Of course the company also has debt. It has a unitranche revolving credit facility and term loan with JPMorgan Chase Bank NA and Wells Fargo Bank NA, respectively. As of the petition date, the company owes approximately $39mm under the facility. But as operating performance deteriorated, JPM and WFC became skittish and increased discretionary reserves by $18mm — the nail in the coffin as the company no longer had sufficient liquidity to continue to operate (PETITION Note: Wells Fargo has been particularly savage when it comes to aggressively increasing reserves on its retail clients. We’ve seen this movie before with Pier 1 Imports Inc. and Destination Maternity Inc.). This, despite the company started stretching its vendors and landlords. Rent for February and March went unpaid. The company projects $100mm in general unsecured claims, ex-lease breakage claims.

While the business suffered, multiple attempts to achieve an out-of-court restructuring and/or a sale to a strategic buyer failed. The company will now undertake a coordinated wind down to maximize recoveries for stakeholders. Absent some White Knight swooping in here at the 13th hour, pour one out for Modell’s Sporting Goods Inc.

• Jurisdiction: D. of New Jersey (Judge Papalia)

• Capital Structure: $29.5mm RCF (JPMorgan Chase Bank NA), $9.225mm Term Loan (Wells Fargo Bank NA)

• Professionals:

  • Legal: Cole Schotz PC (Michael Sirota, David Bass, Felice Yudkin)

  • Financial Advisor: Berkeley Research Group LLC (Robert Duffy)

  • Investment Banker: RBC Capital Markets

  • Real Estate Advisor: A&G Realty Partners LLC

  • Liquidation Consultant: Tiger Capital Group LLC

  • Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • JPMorgan Chase Bank NA

    • Legal: Otterbourg PC (Daniel Fiorillo, Chad Simon) & Norris McLaughlin PA (Morris Bauer, Allison Arotsky)

  • Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Steven Fox)

  • Local 1102 RWDSU UFCW, Local 1102 Retirement Trust, and Local 1102 Health and Benefit Fund

    • Legal: Rothman Rocco Laruffa LLP (Matt Rocco) & Lowenstein Sandler LLP (Kenneth Rosen)
      

📜New Chapter 11 Bankruptcy Filing - SFP Franchise Corp. (aka Papyrus)📜

SFP Franchise Corp.

January 23, 2010

Just last week someone from the PETITION team needed to get a card commemorating a family occasion and checked out the Papyrus store in Grand Central Station. It was jam-packed. She then went on to spent $7.99 on a frikken card — something that, it seems, was just $2.99 a few years ago. We suppose there’s a $4 premium for cards that look hand-created yet are mass-produced. Whatever. Anyway, inflation notwithstanding, Tennessee-based SFP Franchise Corp. and its affiliate Schurman Fine Papers filed for bankruptcy this week. Sure, sure, they sell $7.99 cards but at the time of filing, the debtors were down to their last $32k. 😬

This is NOT a story about disruption in the way some might expect. No, electronic cards that literally NOBODY ON THE PLANET OPENS did not destroy this business. At least significantly enough for the company to acknowledge it as a factor. People still dig physical acknowledgements. Instead, this is a story about over-expansion, poor timing, bad deals and over-reliance on one counterparty. In this case, American Greetings Corporation.

The debtors started in 1950 as a greeting card and stationary wholesaler. They expanded into franchise, retail and online over time and the expansion brought on some pain in 2008-2009 (shortly after the company re-purchased franchises). At that time, the debtors engaged with American Greetings as a strategic partner. The debtors sold American Greetings their wholesale business and brand and related trademarks. In turn, the debtors acquired the retail business previously operated by American Greetings — both in the US and Canada (PETITION Note: if you’re thinking, “I thought that brand and trademarks are really the only thing of value for retailers today, well, you’re not wrong.”). Score one for American Greetings here: it dumped its brick-and-mortar retail on the debtors right before the retail sh*tstorm hit. 👍

The deal is special in retrospect. American Greetings agreed to (i) supply the debtors product for an initial term of 7 years, and (ii) provide a royalty-free license of the trademarks for 10 years. In exchange, the debtors agreed to (i) provide fee-generating marketing services for 7 years and (ii) collect and provide point-of-sale data to American Greetings for an initial term of 7 years (for a fee). In essence, the debtors didn’t own or control the product and didn’t own or control the intellectual property. Said another way, this business was dead in 2009: the debtors just didn’t know it yet.

Well, it’s now 2020 and the debtors are, in fact, officially dead. American Greetings pulled the plug in December when it notified the debtors that it was terminating the agreements (citing default under the agreements). Instantaneously, the debtors lost access to product which, in turn, affected revenues.

All 254 stores in the US (178) and Canada (76) will close. 1,100 people are going to need to find new jobs. Trade creditors owed approximately $8mm are essentially screwed. And there will now be more empty boxes in malls. The ramifications of a liquidating retailer cannot be overstated.

The debtors will seek permission to use cash collateral to conduct, with the assistance of Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC, an orderly liquidation under chapter 11.

• Jurisdiction: D. of Delaware (Judge )

• Capital Structure: $6.675mm RCF (Wells Fargo Bank NA), $10mm LOC (PNC Bank NA), $38.7mm subordinated debt (AG, Carlton Cards Limited, Papyrus-Recycled Greetings Canada Ltd.)

• Professionals:

  • Legal: Landis Rath & Cobb LLP (Adam Landis, Matthew McGuire, Nicolas Jenner)

  • Financial Advisor/CRO: Mackinac Partners LLC (Craig Boucher)

  • Liquidation Consultant: Gordon Brothers Retail Partners LLC & Hilco Merchant Resources LLC

    • Legal: Greenberg Traurig LLP (Jeffrey Wolf, Dennis Meloro)

  • Claims Agent: Omni Agent Solutions (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition Agent: Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox, Anthony Stumbo, Paul Bekker) & Womble Bond Dickinson US LLP (Matthew Ward, Morgan Patterson)

  • Subordinated Creditor: American Greetings Corporation

    • Legal: Baker & Hostetler LLP (Michael VanNiel, Adam Fletcher) & Saul Ewing Arnstein & Lehr LLP (John Demmy)

New Chapter 11 Bankruptcy Filing - Advanced Sports Enterprises Inc.

Advanced Sports Enterprises Inc.

November 16, 2018

Another day, another retailer in bankruptcy court.

Advanced Sports Enterprises Inc. and several affiliated companies filed for bankruptcy on Friday in the District of North Carolina. The debtors are designers, manufacturers and wholesale sellers of bicycles and related equipment. The debtors utilize both online (www.performancebike.com) and brick-and-mortar channels (104 retail stores across 20 states) to sell their bikes.

The debtors blame their capital structure and the seasonal nature of their business for their fall into bankruptcy. Due to lack of liquidity, it sounds as if the debtors engaged in an operational restructuring that included stretching payables to suppliers and creditors. As you might imagine, once payments are delayed, suppliers and creditors get kind of pissed off and start imposing more aggressive payment terms. In other words, they’re not too keen on being creditors. When that happens, a company pushing the envelope is caught in a vicious cycle. Indeed, here, the debtors say that they are on pace to run out of money in January 2019.

So, the debtors intend to market their business to an array of potential purchasers: private equity funds, family offices, strategic parties, and liquidators. While that process plays out, they will close 40 stores. They seek approval of a $45mm DIP credit facility from their prepetition senior secured lender, Wells Fargo Bank NA, to fund the cases.

• Jurisdiction: D. of North Carolina

• Capital Structure: $37.9mm first lien credit facility (Wells Fargo NA). $7.375mm term loan (Advanced Holdings Co., Ltd.). Otherwise, see below.

• Company Professionals:

  • Legal: Flaster/Greenberg P.C. (William Burnett, Richard Dressel, Harry Giacometti, Douglas Stanger, Damien Nicholas Tancredi) & (local) Northern Blue LLP (John Northen, Vicki Parrott, John Paul H. Cournoyer)

  • Financial Advisor: Clear Thinking Group LLC (Joseph Marchese)

  • Investment Banker: D.A. Davidson & Co. (Michael Smith)

  • Liquidator: Gordon Brothers Retail Partners LLC

  • Real Estate Consultant: A&G Realty Partners LLC

  • Claims Agent: KCC LLC (*click on company name above for free docket access)

• Other Parties in Interest:

  • Senior Secured Lender: Wells Fargo Bank NA

    • Legal: Riemer & Braunstein LLP (Donald Rothman, Steven Fox) & (local) Williams Mullen (Holmes Harden)

  • Unsecured Creditors Committee: none appointed due to lack of creditors.

Source: First Day Declaration.