Chapter 11 bankruptcy comes with significant risk for the survival of the company. That’s because once a company files for bankruptcy, even if it has a pre-packaged plan, it runs the risk of something going wrong.
Financing deals can fall apart if vendors, creditors, or even employees take issue with how the company plans to move forward. In the case of retail chains, vendors have significant power because if they decide that the retailer might be worth more dead than alive, they can stop supplying the chain or only ship goods with cash payments upfront.
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A lack of merchandise to sell makes any turnaround plan essentially impossible. That’s basically what happened to Bed Bath & Beyond, Christmas Tree Shops, and Tuesday Morning. All three companies entered Chapter 11 bankruptcy with a plan to survive but were unable to get vendors, creditors, and financers to agree on a path forward.
Sometimes a prepackaged Chapter 11 bankruptcy goes smoothly. Joann recently emerged from a Chapter 11 bankruptcy filing in a much healthier financial position, but that’s not always the case because after filing, the company puts its fate into the hands of the bankruptcy court.
If there are objections to the plan, things can fall apart quickly sending a company from a reorganization to a liquidation.
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Express has a Chapter 11 bankruptcy plan
Popular mall-based clothing retailer Express filed for Chapter 11 bankruptcy with a clear plan to sell itself to a consortium led by WHP Global (“WHP”), which also includes two of its landlords Simon Property Group and Brookfield Properties.
Simon and Brookfield have partnered with a number of struggling retailers to help keep them afloat in order to keep them as tenants in their malls.
“To facilitate the sale process, Express and its subsidiaries have filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the District of Delaware. Express has received a commitment for $35 million in new financing from certain of its existing lenders, subject to court approval. Additionally, on April 15, 2024, the Company received $49 million in cash from the Internal Revenue Service related to the CARES Act,’ the retail chain shared in a press release.
The chain has continued to operate normally in its stores and online across its Express, Bonobos and UpWest brands.
“We continue to make meaningful progress refining our product assortments, driving demand, connecting with customers and strengthening our operations,” Express CEO Stewart Glendinning said at the time of the Chapter 11 bankruptcy filing. “We are taking an important step that will strengthen our financial position and enable Express to continue advancing our business initiatives.”
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Express faces bankruptcy challenge, liquidation bid
Express creditors have taken issue with a potential 3% breakup fee that would be imposed if WHP’s group, which already owns a 60% stake in the retailer, is not the winning bid. That fee could discourage other bidders looking to acquire the chain or its assets, according to a Bloomberg Law report.
“ReStore Capital LLC, representing second lien lenders, said it supports Express’ efforts to turn its business around but isn’t on board with proposed payments the lead bidder — a consortium led by Express’ two largest landlords — is seeking as a condition of its offer,” according to a May 26 filing in the US Bankruptcy Court for the District of Delaware.
Express closed 95 of its retail locations when it filed for Chapter 11 bankruptcy protection. The retailer also shared that liquidation would likely occur if the bankruptcy did not proceed quickly.
The company has named the WHP, Simon, and Brookfield group as its preferred buyer, but a second liquidation bid has been placed.
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“Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC submitted a competing liquidation bid of about $261 million last week. Hilco and Gordon Brothers didn’t request a breakup fee or expense reimbursement, ReStore said,” according to Bloomberg.
