Borders Group, the bookstore company that once dominated its industry with large format stores, may be out of business soon. Direct Brands, a portfolio company of the investment firm Najafi Companies, had entered into a $435 million stalking-horse bid for the company in June. Unsecured creditors apparently came to the conclusion that returns could be maximized through a liquidation rather than a going-concern sale, and a group of liquidators led by Great American Group and Hilco is now the favoured bidder.
With 237 stores liquidated already, this outcome is hardly a shock, though it does illustrate the severe challenges retailers have faced since 2008 in emerging from a bankruptcy filing. Changes to the bankruptcy code in 2005 have severely pressured troubled retailers by forcing them to more quickly identify which leases to accept or reject, and with the need for turnaround advisors to complete four wall analyses of each location in order to divide financially viable locations from those that are beyond hope, many retailers seem to have simply run out of time in this cycle.
As a result, liquidators have been busy with retailers since 2008:
- Linens ‘n Things: filed in 2008, liquidation begun October 2008.
- Circuit City: filed chapter 11 in November 2008 and was converted to a chapter 7 (liquidation) in January 2009.
- The list goes on…
The good news for creditors is that the willingness of parties to accept and even push for liquidation when it is the best option will tend to maximise creditor recoveries. The sad truth of life in the turnaround and restructuring industry is that sometimes minimising losses is the best possible outcome.
David Johnson is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies and municipalities. He can be reached at 312-505-7238 or at [email protected].
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