Below is our initial take on recent bankruptcy-related developments:
Last week, pharmacy chain Rite Aid notified the U.S. Securities and Exchange Commission (SEC) stating that it was considering bankruptcy. On Sunday, it filed for Chapter 11 bankruptcy protection.
S&K Take: The Rite Aid filing hit a little quicker than most (at least I) expected. Rite Aid has a lot of issues. It has exposure to opioid and other litigation claims, competition from online pharmacies, and the brick-and-mortar overhang typical in most retail cases. Not a pretty combo. The case calls for a dual-track process. Behind door number 1 is an equitization of the second lien debt for the vast majority of the equity in the company. The first liens would be paid in cash or the exit facility and GUCs would get some equity tip. Behind door number 2 is a sale in which some other party beats the offer behind door number 1. It may be a likelihood given the bad blood that seems to exist between the parties.
On Sunday, furniture store Z Gallerie filed for bankruptcy. The company’s liabilities are stated to be between $50 million and $100 million. Federal Express, AT&T and Google are the company’s biggest unsecured creditors.
S&K Take: Chapter 33, the ol’ Larry Bird special! This one looks rough, as the Debtor acknowledged that GUCs are unlikely to receive anything. The owner from the chapter 22 is a brand afficionado (CSC, which also owns Sur La Table and others), but it couldn’t make this one work. Z Gallerie only had 21 stores remaining (compared to 74 in its 2019 bankruptcy) and it looks like that number goes to close to 0. The Debtor states that e-commerce sales have been solid, but in person has been brutal. The Debtor has a very limited DIP budget and a sale process teed up which likely sees the assets go to the existing lender. The industry is interesting here—home retailers are feeling the pain because home sales are down big. The space is one to watch.
A U.S. bankruptcy judge has approved the Boy Scouts of America to pay nearly $245 million in fees to attorneys and financial advisers who worked on the organizations settlement of sex abuse claims.
S&K Take: Some big numbers in here, although lots of work goes into a case like this, particularly one that has seen appeal after appeal. Debtors’ counsel was granted $71 million, committee counsel $38 million. Certainly a long and winding road, that looks like it has finally reached its conclusion. Certain insurers would dispute that, but time will tell on that front.
Lordstown Motors, a bankrupt electric vehicle company, obtained U.S. bankruptcy court acceptance to sell its manufacturing assets for $10.2 million to a new company linked with Stephen Burns, the founder and former CEO of the company.
S&K Take: Not much fanfare on this sale. Good to see that the founder is a true believer, I guess? The EV space is hot, but these guys only made 50 or so vehicles. Not sure what value is there, but godspeed Mr. Burns. The bigger issues were the Karma and Foxconn litigations. The Debtor solved for one of those, but Foxconn is still fighting. This has been a fun case to watch, and one we will keep an eye on.