Bon-Ton wins $725M loan as some press for liquidation
- Bon-Ton Stores on Tuesday won court approval on its initial Chapter 11 motions, including $725 million in bankruptcy financing, according to a press release and court filings. The company filed for bankruptcy protection on Sunday.
- CEO Bill Tracy said in a statement of the court approvals, "We intend to use the additional time and financial flexibility of this court-supervised process to engage with potential investors and our debtholders on a financial restructuring plan as well as evaluate options for our business," which could include a sale of the company and its assets. The structured debtor-in-possession loan Bon-Ton agreed to, in order to keep funding operations, comes with a spread of interest rates attached to different pieces of the loan and closing fees of about $9.5 million, according to a court filing.
- The approvals come over objections by some of Bon-Ton's creditors who want the company to liquidate in bankruptcy. In a filing, a group of second lien bondholders said that "the best and only available path for the debtors to maximize value for their creditors in these freefall bankruptcy cases is to conduct an immediate orderly liquidation of the debtors' inventory and other assets."
Bon-Ton's fate in and beyond bankruptcy is anything but certain.
The struggling department store retailer, whose roots go back to the 19th century and is still largely controlled by the founding family, explored a possible restructuring, bankruptcy or sale throughout 2017, according to a court filing from James Baird, one of Bon-Ton's financial advisers with PJT Partners.
Baird said that Bon-Ton was "facing industry headwinds that stressed their liquidity which, in turn, undermined their ability to competitively position their business for the upcoming holiday season."
While Bon-Ton was negotiating, it also drew up and started executing on a turnaround plan, one that contemplated cost savings, omnichannel and merchandising improvements, and a marketing push. According to Baird, Bon-Ton invested $1.5 million in 10 stores to "increase assortment, improve the merchandise presentation and enhance the customer experience." Comparable sales at those stores improved 8% against the retailer's regular fleet of stores, Baird said.
Bon-Ton also looked for a buyer in late 2017. Between November and early January, Baird said his firm went to 38 "potentially interested parties" about an acquisition, without a specific proposal drawn up. Just seven signed confidentiality agreements to begin a due diligence process and the talks hadn't produced any formal interest, though Baird said some parties wanted to keep talking.
The group of second lien bondholders — some of whom are determined to block any potential buyout bid, according to the Wall Street Journal — jumped on that fact, among others, to argue that Bon-Ton has no ultimate future as a going concern. In fact, the group said in its filing that they wanted Bon-Ton to liquidate during the holiday season, when going-out-of-business sales would have produced the most cash to pay off the retailer's debt obligations.
"Unfortunately, though not surprisingly," Bon-Ton's sales dropped during the holiday period, the group said. "In the meantime, the debtors have continued to incur the enormous overhead cost of maintaining a going concern that has little prospect of surviving."
The creditor group had more harsh words regarding Bon-Ton's future prospects. "Rather than face reality, the debtors are now seeking a third bite at the going concern apple, proposing another lengthy marketing and sale process that will stretch over two months," they said in their filing, adding that during that time the retailer will "incur mammoth overhead costs" to keep operating and pay claims in bankruptcy (which would happen to supersede in court the second lien holders claims).
"These payments are supported only by a hope that a miracle suitor will emerge now that the debtors have filed for bankruptcy," the group said. They added that Bon-Ton's "survival is, at best, uncertain, and in reality, unlikely."
Meanwhile, the company continues to project optimism about its future. Tracy said its operations and stores are operating as usual. "Across our seven well-loved brands, we continue to deliver the exceptional shopping experience customers expect in our stores and across e-commerce and mobile platforms," he said.
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