The retail sector has faced economic hardship in 2024 with several retail chains closing underperforming stores and in some cases filing either Chapter 11 bankruptcy to reorganize or sell their assets or Chapter 7 to liquidate and wind down operations.
Huge retail chain Big Lots, which operated 1,392 stores in 48 states at the beginning of 2024, filed for Chapter 11 bankruptcy on Sept. 9 with plans to sell its assets to its stalking-horse bidder Nexus Capital Management for a $760 million bid, which includes $2.5 million in cash, debt payoff, and assumption of liabilities.
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Other major retailers filing Chapter 11 included home improvement retailer LL Flooring which filed for protection on Aug. 11, 2024, closed 211 stores and sold 219 stores to F9 Investments, which plans to operate the company as a going concern.
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Discount retail store 99 Cents Only filed for Chapter 11 bankruptcy on April 8, 2024, and later in May 2024 it filed for Chapter 7 bankruptcy to close down and liquidate all 371 stores in Arizona, California, Nevada, and Texas.
The Vitamin Shoppe’s parent Franchise Group filed for Chapter 11 bankruptcy.
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The Vitamin Shoppe operator files for Chapter 11 bankruptcy
And now Franchise Group Inc., operator of retail franchise chains The Vitamin Shoppe, Pet Supplies Plus, Buddy’s Home Furnishings, and American Freight, filed for Chapter 11 bankruptcy on Nov. 3 with a plan to either sell all of its assets or hand its equity to its first-lien term lenders.
The Delaware, Ohio-based company and 52 affiliates filed their petition in the U.S. Bankruptcy Court for the District of Delaware citing adverse macroeconomic trends and headwinds in the retail industry for seeking bankruptcy protection. It reported $1 billion to $10 billion in assets and liabilities in its petition.
The debtor blamed operational declines and losses across its businesses resulting from underperforming retail store locations, inflationary pressures, an overleveraged balance sheet, and rising interest expenses, according to a declaration from Chief Restructuring Officer David Orlofsky of AlixPartners LLP.
The privately-owned debtor owes over $1.98 billion in funded debt, including $1.09 billion in first-lien term debt, $248.7 million in an asset-based lending facility, $125 million in second-lien term loan, and a $514.7 million Holdco term loan.
Franchise Group also owes about $106 million in unsecured claims to creditors including Nestle Purina Petcare Co., owed $6.53 million; Hill’s Pet Nutrition, owed $5.21 million and Coyote Logistics, owed $4.64 million.
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The debtor reached a restructuring support agreement with holders of 80% of its first-lien debt that calls for the company to arrange a sale process through a Chapter 11 bankruptcy. If a bidding process is not successful, the plan calls for the first-lien lenders to receive 100% of the debtors’s equity in exchange for the debt it holds.
The restructuring support agreement calls for the first-lien lenders to provide the debtor with $250 million in new money to meet its operational needs during the bankruptcy case.
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The plan also calls for the debtor to liquidate and wind down furniture, mattress, and home appliance retailer American Freight after failing to sell the retail chain as a going concern prepetition.
Franchise Group’s four retailers consist of 2,200 retail locations and 11,900 employees.
American Freight, founded in 1994, provides in-store and online retail access to furniture, mattresses, new and out-of-box appliances, and household accessories at discount prices. The Delaware, Ohio-based retailer has 344 company-owned locations and 13 franchise stores.
The Vitamin Shoppe, based in Secaucus, N.J., was founded in 1997 and operates 680 company-owned and 20 franchise locations selling nutritional supplements.
Pet Supplies Plus, founded in 1988 and based in Livonia, Mich., has 240 company-owned and 550 franchised pet supply stores.
Buddy’s Home Furnishings, founded 1961 and based in Orlando, Fla., offers consumer electronics, home furniture, household appliances, and accessories from 34 company-owned and over 300 franchise locations.
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