President Barack Obama, you may have heard, is taking a victory lap around the world, telling everyone how he saved the American economy. Meanwhile, that happens to be news to the millions of Americans who are affected every day by the president’s bad economic decisions.
That list unfortunately got a bit longer this week, as major retailer Sports Authority decided to undergo liquidation.
The Wall Street Journal reported yesterday that the sports retail giant had decided against reorganization and had instead opted to undergo a liquidation process.
“It has become apparent that the debtors will not reorganize under a plan but instead will pursue a sale,” company attorney Robert Klyman told the court at a bankruptcy hearing in Wilmington, Delaware, on Tuesday.
Sports Authority has abandoned hope of reorganizing and exiting bankruptcy and instead will count on buyers to save parts of its sprawling retail chain, company lawyer Robert Klyman told a judge Tuesday.
”It has become apparent that the debtors will not reorganize under a plan but instead will pursue a sale,” Mr. Klyman told Judge Mary Walrath at a hearing in the U.S. Bankruptcy Court in Wilmington, Del.
Loaded with more than $1.1 billion in debt, Sports Authority filed for bankruptcy protection in March, saying it would attempt to trim its operations and restructure, while looking for buyers as an alternate path. Now the alternative route is the only path forward for the distressed retailer, an employer of thousands of people.
Some stores were already being closed when the bankruptcy filing came, others were to follow, and a May 16 auction is set for the bulk of Sports Authority’s operations.
”Major” potential bidders are looking over Sports Authority’s assets, and the company hopes for a good outcome to the auction, said Mr. Klyman, a lawyer at Gibson Dunn Crutcher.
However, liquidators are just as entitled to bid at bankruptcy auctions as are buyers who continue to operate the stores, and there are no guarantees any of the stores, or collections of outlets, will stay in operation.
News that Sports Authority believes it is past saving came at the start of a fight over a bankruptcy financing that pits the company and its senior lenders against landlords and vendors that had consigned goods to Sports Authority for sale.
Money is flowing in from the going-out-of-business sales that are already under way, as well as continuing sales at stores that aren’t marked for liquidation, even though suppliers have been reluctant to fill Sports Authority’s orders. Creditors question why Sports Authority needs to sign up for financing it doesn’t need, deals that allegedly benefit senior lenders.
‘It has become apparent that the debtors will not reorganize under a plan but instead will pursue a sale.’
Bankruptcy-financing arrangements that won interim approval earlier in the chapter 11 case have allowed lenders to sweep $109 million to pay down their loans, according to the official committee of Sports Authority’s unsecured creditors.
That’s been a sore spot for landlords, who believe the timing of the bankruptcy filing, one day after the March rent was due, “had the effect of granting Sports Authority an unsecured interest-free loan of $27 million,” according to David Pollack, lawyer for many of the retailer’s landlords.
Sports Authority typically paid about $27 million per month in rent. By filing March 2, the retailer was able to avoid paying the March rent until the end of its case. If there isn’t enough money when Sports Authority’s sales are over, landlords whose premises hosted bankruptcy sales that benefited banks could be forced to take a haircut.
The financing fight is also the arena for Sports Authority to contend with claims from some vendors that they, rather than lenders, have the right to collect the proceeds when the goods they supplied are sold.
Talks continue over the process of wrapping up Sports Authority’s affairs, Mr. Klyman said. While a chapter 11 reorganization plan is now off the table, a chapter 11 liquidating plan that would set out how the company will deal with its debts is possible.