July 14, 2020 – The Paper Store, LLC and one affiliated Debtor (“TPS” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Massachusetts, lead case number 20-40743 (Judge Panos). The Debtors, "the largest family-owned and operated specialty gift business in the Northeast," are represented by Paul J. Ricotta of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C. Further board-authorized engagements include (i) G2 Capital Advisors as financial advisors, (ii) SSG Capital Advisors as investment banker and (iii) Donlin Recano as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $50.0mn and $100.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Hallmark Cards,Inc. ($1.3mn trade debt), (ii) Vera Bradley Designs,Inc. ($735k trade debt) and (iii) DEMDACO ($272k).
Goals of the Chapter 11 Filings
The Van der Wiel Declaration (defined below) states: "the Debtors seek to maintain their business operations without interruption and establish administrative procedures to facilitate a smooth transition into chapter 11, in each instance for the purpose of maintaining and maximizing the value of the Debtors and their estates as a going concern in contemplation of a sale of the Debtors’ assets."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Van der Wiel Declaration”), Don Van der Wiel, the Debtors’ Chief Restructuring Officer, detailed the events leading to TPS’s Chapter 11 filing. The Debtors make it clear that this is plainly about COVID-19, but a few other adverse events sneak into the mix, namely a late Thanksgiving (happens once every seven years), too much snow (multiple store-closing snow storms) and a disappointing post-season for the New England Patriots (posting a Titanic loss in a wild card game and apparently sapping New England consumers of the will to spend).
On COVID-19, the Van der Wiel Declaration provides: “In March of 2020, despite the optimistic prospects for the future of the Debtors, the sudden economic impact of the global COVID-19 pandemic derailed the Debtors’ plans. Like just about every retail business in the United States, the Debtors have been operating under the considerable financial strain caused by the pandemic, which has had a severe impact on revenues. Even though stores have been allowed to recently reopen in most jurisdictions, the disruption and additional cost of trying to preserve the health and safety of nearly 2000 full and part time employees has only made matters worse. The temporary closure of all of the Debtors’ 86 retail stores and the disruption to the Debtors’ customer base and, to a certain extent, its supply chain have also exacerbated the Debtors’ issues related to substantial funded debt obligations and significant lease obligations.
In short, the filing of these Chapter 11 Cases has been caused by the COVID-19 crisis.”
Prepetition Indebtedness
As of the Petition date, the Debtors’ prepetition capital structure includes approximately $45.0mn in funded debt, of which $40.0mn of such debt is held by third party institutional lenders and $5.0mn of which is held by insiders of the Debtors. The Debtors’ funded debt obligations are summarized below:
|
Debt Class |
Lender |
Principal Outstanding as of Petition Date |
|
Revolving Line of Credit |
City National Bank, as agent |
$17,000,000 |
|
Term Loan |
Kayne Anderson, as agent |
$22,975,000 |
|
Junior Capital Loan |
Founder Investerco |
$2,980,000 |
|
Junior Capital Loan |
Westview Capital Partners III |
$1,655,738 |
|
Junior Capital Loan |
Harbourvest/Nystrs Co-Invest Fund II |
$331,148 |
|
Junior Capital Loan |
Beth Angelo |
$33,115 |
About the Debtors
According to the Debtors: "It all started with a small newspaper stand in Maynard, MA in 1964 – established by our founder, Bob Anderson. Over the years The Paper Store has responded to what our local communities need and continues to evolve with our customers’ shopping habits – while at the same time, staying true to our brand. Hence, why we remain named 'The Paper Store.'
The Paper Store is the largest family-owned and operated specialty gift business in the Northeast. Today, the Anderson family runs over 80 stores throughout the Northeast – and a thriving ecommerce business — with over 3,000 employees who make The Paper Store 'tick.' Our team works diligently to offer guests a unique shopping experience where they can find a unique gift for any occasion."
The Van der Wiel Declaration adds: "At its inception more than 55 years ago, the original vision of The Paper Store was to serve as a local retailer offering newspapers, magazines, greeting cards and school supplies. Since then, The Paper Store has expanded beyond its original vision and has grown organically from a “mom-and-pop” shop to a regionally renowned specialty retailer. Today, The Paper Store has grown into one of the leading specialty gift chains in the Northeast with 86 locations in 7 states."
Corporate Structure Chart
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