February 18, 2020 – The Court hearing the Pier 1 Imports case issued an interim order authorizing the Debtors to enter into a consulting agreement with Gordon Brothers Retail Partners, LLC (“Gordon Brothers” or the “Consultant”) in respect of the closing of up to 450 stores (398 store closings already underway with estimated proceeds of $177.0mn), including all stores in Canada, (the “Sales” or “Store Closings”) [Docket No. 103]. The Court also issued a bidding procedures order approving (i) a form asset purchase agreement, (ii) a plan support agreement and (iii) an auction/sale timetable culminating in an auction on March 31st and a sale hearing on April 23rd [Docket No. 102].
The Store Closings
The Court's order gives the Debtors the go ahead to assume an existing Store Closing Program Agreement (as further detailed by "Statements of Work Letters" attached to the order) by and between the Debtors and the Consultant. The Debtors expect that the process in respect of the 398 "Initial Store Closings" will be completed by the end of March with proceeds of approximately $177.0mn
The Debtors' requesting motion [Docket No. 24] provides the following overview of the store closing operation in respect of their North American stores:
"Over the past several years, the Debtors have faced a challenging commercial environment brought on by increased competition and the consumer shift away from shopping at brick-and-mortar stores. Given the expenses associated with a substantial brick-and-mortar presence, and the issues affecting the retail industry as a whole, a significant number of the Debtors’ stores are operating at sub-optimal performance levels.
The Debtors’ management team and advisors determined that it was appropriate to close and wind down approximately 398 underperforming brick-and-mortar stores. In late 2019, the Consultant commenced an ongoing Store Closing process with respect to 71 stores, a majority of which had naturally expiring leases. On January 6, 2020, the Debtors announced an intention to close up to 450 stores. On or around January 10, 2020 the Company initiated the Store Closings at approximately 270 Initial Closing Stores, which included 169 that had previously been converted to a clearance store format. Within the next few days, the Debtors intend to initiate closings of the Debtors’ 56 stores in Canada, and an additional U.S. store. The Debtors expect all Sales at the Initial Store Closings to be completed and the properties vacated by March 31, 2020. The Debtors estimate that the proceeds from all the Sales will be approximately $177mn."
Bidding Procedures Order
The bidding procedures order attaches a form of APA which is predictably anodyne; the more interesting attachment is the Plan Support Agreement (the "PSA"), dated February 16, 2020, amongst the Debtors and certain holders of the Debtors' term loan claims. The PSA includes a reference to a “Reserve Price,” ie a bidding floor "at which the Term Loan Lenders would receive a cash recovery of $104.7 million (i.e. 55 cents on the dollar) on account of the Term Loan Claims." A "Note to Draft" [mistakenly left in?] states that this amount is "Subject to ongoing review and discussions among Guggenheim and F."
If the Reserve Price is not met, a “Lender Election” kicks in; this giving the term loan lenders the right to "pursue (a) an Equitization Restructuring and cancellation of the Auction (as defined in the Bidding Procedures), or (b) an Auction as contemplated in Section 4 of this Agreement."
Prepetition Marketing Efforts
The Debtors' bidding procedures motion [Docket No. 34] provides the following background on marketing efforts to date: “Throughout the months leading up to the commencement of these chapter 11 cases, the Debtors worked with Guggenheim Securities, and the Debtors’ other advisors to explore and develop various strategic alternatives to maximize the value of the Debtors’ assets, including a potential conversion of the existing Term Loan Lenders’ debt to equity and the potential sale of the Debtors’ assets. To ensure that these chapter 11 cases proceed as expeditiously as possible, the Debtors have dual-tracked these potential alternatives, and will implement the best path for the benefit of all stakeholders. Indeed, the Debtors, with the assistance of Guggenheim Securities, have already contacted numerous potential bidders and intend to continue this process during these chapter 11 cases.
Specifically, beginning in December 2019, the Debtors, with the assistance of Guggenheim Securities, contacted approximately 22 strategic buyers and investors. These strategic buyers and investors were selected based on their business model, historical acquisition activity and financial capabilities, among other factors. Also, approximately 69 financial buyers and investors were contacted. These financial buyers and investors were selected based on their historical interest in retail, consumer and branding opportunities, existing and past investment and financial capabilities and other factors. Finally, approximately four brand/inventory buyers, who were selected based on their historical interest in individual retail assets, were also contacted. Thus, in total, approximately 95 strategic, financial and brand/inventory buyers were contacted and received introductory materials and non-disclosure agreements (“NDAs”), of which 35 parties have executed or are in the process of executing NDAs and 25 parties have received a Confidential Information Memorandum and other information containing business and brand overviews, product positioning, management team information, channel overviews, customer demographics, strategic plans, growth opportunities, and historical and projected financial information.
Proposed Key Dates:
- Bid Deadline: March 23, 2020
- Auction: March 31, 2020
- Sale/Confirmation Hearing: April 23, 2020
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The post Pier 1 Imports, Inc. – Court Approves Continuation of 450 Store Closing Process (Estimated Proceeds of $177mn); Bidding Procedures Order Indicates that Term Loan Lenders are Targeting Cash Recovery of $105mn in Sale appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.