Chapter 11 bankruptcy carries a significant risk to the survival of the company. This is because once a company files for bankruptcy, even if it has a pre-made plan, it runs the risk of something going wrong.
Financing deals can fall apart if suppliers, creditors, or even employees disagree with how the company plans to move forward. In the case of retail chains, suppliers 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 products with cash payments up front.
Related: A struggling restaurant industry brand files for Chapter 11 bankruptcy
The lack of merchandise to sell makes any recovery plan essentially impossible. That's basically what happened with Bed Bath & Beyond, Christmas Tree Shops, and Tuesday Morning. The three companies filed for Chapter 11 bankruptcy with a plan to survive, but were unable to get suppliers, creditors and financiers 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 is not always the case because after filing, the company puts its fate in the hands of the bankruptcy court.
If there are objections to the plan, things can quickly fall apart and take a company from reorganization to liquidation.
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Express has a Chapter 11 bankruptcy plan
Express, the popular mall-based clothing retailer, 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 owners. , Simon Property Group and Brookfield Properties.
Simon and Brookfield have partnered with several struggling retailers to help them stay afloat and retain them as tenants in their shopping centers.
“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 of $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 through its Express, Bonobos and UpWest brands.
“We continue to make significant progress refining our product assortment, 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 allow Express to continue advancing our business initiatives.”
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Express faces bankruptcy challenge and liquidation offer
Express's creditors have taken issue with a potential 3% break-up fee that would be imposed if the WHP group, which already owns a 60% stake in the retailer, is not the winning bid. That fee could deter other bidders who want to acquire the chain or its assets, according to a Bloomberg Law report.
“ReStore Capital LLC, which represents second-lien lenders, said it supports Express's efforts to turn around its business, but does not agree with the proposed payments that the lead bidder, a consortium led by the two largest owners of Express, is seeking as a condition of its offer,” according to a May 26 filing with the U.S. Bankruptcy Court for the District of Delaware.
Express closed 95 of its retail stores when it filed for Chapter 11 bankruptcy protection. The retailer also shared that a 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 settlement offer has been submitted.
“Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC submitted a competitive settlement offer of approximately $261 million last week. Hilco and Gordon Brothers did not request a breakup fee or reimbursement of expenses, ReStore said,” according to Bloomberg.
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