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Another Big Retailer Gets Liquidated

Summary:
Retailers in bankruptcy are notoriously hard to restructure. Bon-Ton Stores – it operates department stores in 23 states under the brands of Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, and Younkers – filed for bankruptcy in February in the hopes of being able to restructure its debt in court and go on as a going concern. But it has now thrown in the towel, so to speak. The bankruptcy judge today approved the sale of Bon-Ton Stores’ assets to a joint venture of two liquidators and creditors holding Bon-Ton’s second-lien secured notes: The liquidators: Great American Group and Tiger Capital Group. The creditors: PE firms, hedge funds, and investment banks that had scooped up the bonds for cents on the dollar: Brigade Capital Management, Wolverine Asset

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Retailers in bankruptcy are notoriously hard to restructure.

Bon-Ton Stores – it operates department stores in 23 states under the brands of Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, and Younkers – filed for bankruptcy in February in the hopes of being able to restructure its debt in court and go on as a going concern. But it has now thrown in the towel, so to speak.

The bankruptcy judge today approved the sale of Bon-Ton Stores’ assets to a joint venture of two liquidators and creditors holding Bon-Ton’s second-lien secured notes:

The liquidators: Great American Group and Tiger Capital Group.

The creditors: PE firms, hedge funds, and investment banks that had scooped up the bonds for cents on the dollar: Brigade Capital Management, Wolverine Asset Management, B. Riley FBR, Riva Ridge Master Fund, Bennett Management, and Alden Global Capital.

Their joint bid was about $777 million, “a person familiar with the matter” told the Wall Street Journal. The joint venture will close all remaining 250 department stores no later than August 31 – on top of the 40 stores Bon-Ton had already closed before filing for bankruptcy – sell the inventory and other assets, and layoff off the remaining 24,000 employees.

Bon-Ton Stores had already warned on April 6 that it would close a 743,000-square-foot distribution center in Ohio that it had opened three years ago.

At the time of the bankruptcy filing in February, Bon-Ton Stores had obtained a debtor-in-possession (DIP) loan commitment of up to $725 million to get it through the bankruptcy process. Of this commitment, $575 million are outstanding. The purchase price approved today has enough cash in it to repay the outstanding DIP balance.

The payment for the $725 million purchase price also includes the “value” of the bonds of $125 million that the group of bondholders contributed to the deal.

The joint venture won in the bankruptcy auction on Tuesday against a bid from a group of liquidation firms Hilco Merchant Resources and Gordon Brothers Retail Partners.

A third group never never submitted a bid. The group included the credit-focused hedge fund DW Partners and mall owners Washington Prime Group and Namdar Realty Group. Their intent had been to acquire Bon-Ton Stores as a going concern and keep the stores open.

When Bon-Ton stores announced the winning bid on Tuesday, it said in a statement:

While we are disappointed by this outcome and tried very hard to identify bidders interested in operating the business as a going concern, we are committed to working constructively with the winning bidder to ensure an orderly wind-down of operations that minimizes the impact of this development on our associates, customers, vendors and the communities we serve. We are incredibly grateful to all of our associates for their dedicated service to Bon-Ton and to our millions of loyal customers who we have had the pleasure to serve as their hometown store for more than 160 years.

That Bon-Ton Stores would face liquidation if it could not find a buyer became clear in bankruptcy court on March 12, when the company set out the rules for an auction of its business as a going concern. The company said if there’s no bid that satisfies the court and the creditors, it would likely be forced into liquidation.

These creditors – namely said holders of the second-lien secured notes – had been clamoring all along for asset liquidation and did what they could to stymie the restructuring negotiations before and during bankruptcy. Now they got what they wanted.

This will be the second liquidation of a major retailer this year. The first was that of Toys “R” Us. After filing for Chapter 11 bankruptcy last September and promising that it would remain in business, it announced on March 15 that it would close all its 735 stores in the US, liquidate the inventory, and be done with it. About 33,000 jobs will disappear over the next few months.

The retail sector is the second largest employer in the US, with 15.7 million jobs. Over the past 12 months, it actually created 63,000 jobs. But that was in segments that are not under all-out attack from e-commerce, such as gasoline stations, grocery and beverage stores, and auto dealers. The segments that are under attack have shed nearly 70,000 jobs [for more, including charts, see…  How Does Amazon Fit into the Jobs Report?].

These 12-month totals were as of March and do not include the 33,000 Toys ‘R’ Us jobs and the 24,000 Bon-Ton jobs that will disappear over the next few months.

Bon-Ton and Toys ‘R’ Us, before they filed for bankruptcy, occupied nearly 60 million square feet of retail space, which will be vacated by this summer. Toys ‘R’ Us stores are already wreaking havoc among commercial mortgage backed securities. No wonder that two mall owners tried to keep Bon-Ton from liquidating by buying it. It was a move of desperation. It’s a big job to do something useful with 60 million square feet of retail space that becomes vacant all of a sudden in the middle of the brick-and-mortar meltdown.

More broadly, there could be about 12,000 store closures this year in the US, according to data from Cushman & Wakefield, cited by the Wall Street Journal. Last year, which was bad enough, there were about 9,000. While retail sales overall are growing at a healthy clip, the segments that are under attack from e-commerce are getting crushed. And it has started to impact the national averages for commercial real estate. Read…  As Malls Get Crushed, Commercial Real Estate Prices Fall to Lowest in Nearly Two Years

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Wolf Richter
Founder, Wolf Street Corp. In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China.

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