Deep breaths everyone. This week is going to be ⊠new-sy. There is, among other things, Mondayâs inauguration of President Trump amidst a brutal cold front (and a subsequent onslaught of executive orders that are sure to have some people huffing and puffing), the continued fallout of the fires in California, the sure-to-be-gut-wrenching implementation of the first phase of the recently agreed-to ceasefire between Israel and Hamas, and the potential shut down of our beloved and viral TikTok account. Just kidding on that last one: we donât have that mind-poisoning bullsh*t and you shouldnât either.
To put your mind at ease, weâve compiled yet another a$$-kicking briefing below for our paying subscribersâ-only. Well. Maybe not all of you will feel âat easeâ after reading todayâs edition. We cover vendor distress amidst another wave of the #retailapocalypse in the Big Lots Inc. and JOANN Inc. bankruptcies and throw in an EV bankruptcy for good measure; we also cover a pair of transportation names and some nerd sh*t. For those of you wondering about the recent bankruptcies of Prospect Medical Holdings Inc. and Mondee Holdings Inc., donât worry: that coverage is wrapped up but this edition is long AF already. So look for those on Wednesday (which we plan to paywall just to keep yâall on your toes). Without further ado, letâs dig in âŹïž.
âĄïžA BIG MessâĄïž
Itâs been a hot minute since we checked in on the bankruptcy cases of Big Lots Inc. ($BIGGQ) (âBig Lotsâ) and its 18 affiliates (collectively and together with Big Lots, the âdebtorsâ), so letâs have ourselves a little peek âŠ
This company is an absolute disaster, and the past few months in bankruptcy have been nothing short of sh*tshow after sh*tshow. So, much to our chagrin, welcome to our EIGHTH (!!!) post on this god-awful name, đŹ.
To set the table, the last time we scoped out this BIG flaming pile of garbage, the debtorsâ chapter 11 cases were at the outset, having filed in the District of Delaware (Judge Stickles) on September 9, 2024. For those so inclined, you can read about our initial post-filing coverage here.*
For the rest of yâall, the debtors filed their cases with $707.5mm in committed DIP financing (including, gulp, a paltry $35mm of new money) and a deal in hand, having locked up Nexus Capital Management LP (âNexusâ) as their stalking horse bidder,** which, had that deal ever closed, would have kept between 800 and 900 stores open, paid off the DIP, assumed some liabilities, and left the debtors with a cool $2.5mm to satisfy half a billion or more in claims.
By the time the second day hearing on the DIP financing came âround in late October â24, this train was already showing LOTS (đ) of signs of going off the rails, and several landlords and the official committee of unsecured creditors, represented by McDermott Will & Emery LLP (Darren Azman, Kristin Going, Stacy Lutkus, Natalie Rowles) and Cole Schotz P.C. (Justin Alberto, Stacy Newman, Jack Dougherty) as legal counsel and FTI Consulting, Inc. ($FCN) (Clifford Zucker) as financial advisor (the âUCCâ),*** were sounding the alarms about mundane details like administrative solvency.
The UCC had a whole smörgĂ„sbord of DIP issues, some typical UCC stuff (waivers, pre-petition debt roll-ups, challenge period of liens, *yawn*), others less so (the budgetâs failure to fully pay 503(b)(9) claims).**** Landlords, however, had a narrower complaint: â⊠[the budget] did not provide any assurance that Stub Rent would be paidâŠ,â which, of course, the UCC b*tched about too.***** For those not in the know, stub rent is one of those damn pesky administrative expenses that have to be paid in full to confirm any BK plan. But the debtors were able to quell those concerns and squeak through the final DIP hearing by revising the final order to provide âfundingâ for stub rent payments and giving the debtors â⊠authority, but not direction, to draw upon any ABL DIP Availability to provide for such funding[.]â That language is going to come back to bite folks in the a$$, but, whatever, aside from a few dead canaries, nothing seemed amiss, and the court entered the final DIP order on October 22, 2024.
A couple of days later, and after some delay and a modification or two,****** the court also approved the debtorsâ bidding procedures on October 25, 2024, officially blessing Nexusâs asset purchase agreement (the âNexus APAâ) to serve as the stalking horse bid and sending the debtors off ⊠on a short dash? Whatever it was, it wasnât a race. Under the procedures, bids were due October 28, which ⊠*give us a moment, need to pull out a calendar* was a whopping three days later, two of which were the weekend. Uhhh, what? No doubt youâll be flabbergasted to learn that not a single person submitted a qualified bid, although Gordon Brothers Retail Partners, LLC (âGBRPâ),******* the debtorsâ store closing consultant, did drop an unqualified one on the debtors. Beyond its consultant hat, GBRP just happens be to an affiliate of 1903P Loan Agent, LLC (â1903 Agentâ) and 1903 Partners, LLC (together with 1903 Agent, the â1903 Partiesâ), the former of which is the debtorsâ pre-petition and DIP term loan agent and both of which are lenders under those facilities and own a majority of that debt.******** So safe to say that bid was submitted solely out of GBRPâs own interest in the debtorsâ assets, had nothing to do with salvaging the term loan if the Nexus deal ran into a wall (spoiler alert: it did), and these dynamics presented no conflict of interest whatsoever for anyone,đ. Christ. Weeks later, the court approved the Nexus sale on November 22.********* During the hearings, the debtors stressed:
â...it was imperative to swiftly close the Nexus Sale to avoid business deterioration resulting from a prolonged stay in bankruptcy and weakening confidence from the Debtorsâ commercial counterparties regarding the Debtorsâ financial capacity to continue operating as a going-concern.âWell, that didnât happen, and Norfolk Southern now celebrates no longer having title to the most recent, Ohio-based train wreck. Hereâs the debtorsâ post-mortem:
âDespite the Herculean efforts to prepare the estates for the sale transaction, on December 1, 2024, Nexus informed the Debtors that it would need more time to close and identified a new target closing of December 10 or 11, 2024âwhich dates would still permit the Debtors to satisfy the sale closing milestone of December 13, 2024 contemplated by the Debtorsâ DIP Facilities ⊠However, on December 5, 2024, the Debtors received a letter from Nexus notifying the Debtors that the minimum asset value closing condition set forth in ⊠the Nexus APA would not be satisfied ⊠[and] caution[ing] that âthere [was] a significant capital needâ in order to close the Nexus Sale ⊠The Debtorsâ advisors were subsequently informed by Nexusâs advisors that this âsignificant capital needâ was approximately $75 million.â (emphasis added).SEVENTY-FIVE. MILLION. DOLLARS! Put another way, the debtors only needed roundabouts 214% of the new money DIP to get to a close. Smoke starting to billow up, it was clearly time to contingency plan ⊠or at least give some thought to what happens if the Nexus sale falls apart.
LOL, you wish. No, the business judgment rule yearns to be tested, and having 1,000% certainty that debtorsâ counsel Davis Polk & Wardwell LLPâs (Brian Resnick, Adam Shpeen, Stephen Piraino, Ethan Stern) pre-filing decks included a bakerâs dozen or more slides on that topic, this management team wasnât going to simply let that value walk out the door. Seemingly believing that the cash could be scrounged up pretty easily â perhaps by digging between the cushions of the debtorsâ stylish, yet subtle, eye-catching, but accessible, sofa offerings â the debtors doubled down and ââŠcommitted their full efforts to assist Nexus in identifying and engaging with potential additional sources of financing [and] ⊠in their business judgment and with repeated assurances from Nexus that it was working to close the Nexus Sale, continued to pursue consummation of the Nexus Sale.â
Meanwhile, the DIP lenders had noticed all the birds had stopped chirping. Hereâs a live look at the DIP lenders as events unfolded:
The response was all too predictable. Per the debtors:
ââŠthe DIP Lenders and their advisors were advising that the Debtors should seriously consider the parallel alternative path of commencing Store Closing Sales at all of the Debtorsâ stores.âA week passed, and things found new ways to get worse. On December 14, (i) the DIP lenders sent the debtors a notice of DIP default because the sale still hadnât closed, and (ii) Nexus informed the debtors ââŠthat closing the Nexus Sale prior to the Nexus APA Outside Date [of December 31] was very unlikely and that Nexus did not see a realistic path to doing so.â At long last, the debtors awoke from their slumber. After a quick cup of coffee and a morning constitutional, they realized that the lenders had been right all along and gifted their employees a holiday treat.
Thatâs right, the debtors decided to light the business on fire and pivoted to an all-store closing process.
While they were getting busy ruining the holidays for, and lives of, their ~27,700 employees, GBRP had saddled up with a counterparty, Variety Wholesalers (âVarietyâ), and came back âround with a revised bid on December 15, which was based on the Nexus APA and contemplated (i) payment in full of the DIP (which, of course it did, because a good piece of it was held by GBRPâs buds, the 1903 Parties, and maximizing return on the term loan was mission critical), (ii) the preservation by Variety of at least 200 stores and upwards of 400 and, on top of that, a distribution center or two, (iii) the potential â Variety ainât in the promise-making business â of continued employment for âthousandsâ of fortunate souls, (iv) the payment of âanticipatedâ go-forward administrative expenses, and (v) the payment of stub rent and some other administrative expenses, which would be funded by the proceeds of tens of millions of dollars worth of postpetition goods delivered by vendors who continued to support the debtors. Bet you like that, donâtcha, vendors! All in, a sh*t sandwich compared to the Nexus deal, but we reckon the debtors thought it made for better PR than sending every single employee to the breadline. But the iâs hadnât been dotted nor the tâs crossed, so they still had some wood to chop.
Right around the time the debtors received GBRPâs bid, (i) landlords took note that deposits for September stub rent were still curiously missing from their bank accounts and asked the court to hold a status conference, and (ii) the UCC filed a motion to compel payment of that stub rent and 503(b)(9) claims or, alternatively, convert the cases to chapter 7s.
Keenly interested in learning more about this burning trash heap, the court teed them up for a December 19, 2024 hearing. What did the debtors tell us at that hearing? Nothing we couldnât have guessed. The cases were a total f*cking disaster, no one was happy â in fact, most were quite pissed off, the debtors had no budget or clear path forward, stub rent hadnât been paid (remember that language âŹïž that resolved the DIP? The debtors took the position that âfundingâ and âauthority, but not directionâ meant f*ck-all, nothing required actual payment), administrative expenses were growing on the daily (on which, the court remarked, ââŠI do appreciate, you know, the landlords are taking a big risk here and so are the other administrative creditors, including professionals, in this case.â), and GUCs were â how do we put this delicately? â ABSOLUTELY F*CKED.
In the end, all that really came out of it was the courtâs blessing to close all of the debtorsâ stores, the scheduling of a follow-up status conference on December 30, 2024, the debtorsâ agreement to submit a to-be-agreed cash collateral budget and not to place new orders with vendors, and the UCCâs punting of its motion to compel to a date TBD.
Fast forward to Friday, December 27, 2024, and the debtors worked out their deal with GBRP (who entered into a side deal with Variety for the stores and distribution center) and, as if the cases werenât already enough of a clown show, filed a motion to approve it at the Monday, December 30 hearing â another three-day period spanning the weekend (anyone noticing a pattern here?), this time smack dab in the middle of the holidays.********** That finalized deal includes all of the details outlined âŹïž and a special bonus. Remember how 11 days prior, the court made a remark about the big risk âadministrative creditors, including professionals,â were taking? Well, the estate professionals put their heads together and came up with an articulate response.
LOL, expecting those holding the pen to take an L? Câmon now, yâall know better than that! Small vendors and landlords are much better situated to take it on the chin. Anyway, the court obliged the debtors, and everyone got together again on December 30, 2024, and got together they did, both that day and the next. Not to be outdone by Franchise Group, Inc., these hearings were looooooooooooooooooooooong as f*ck. Over TEN HOURS of our lives were sucked away, and weâre never getting them back. And unlike Franchise Groupâs, they werenât even that entertaining! Weâd consider filing an admin claim for the suffering we endured, but with the recovery non-professional admin creditors are gonna get, and tossing in two bucks of our own, weâd be able to buy a sh*tty cup of gas station coffee.
At the hearing, every admin creditor about to get boned and the US trustee (the âUSTâ) had thoughts on notice â as in, there wasnât any. When that issue and related discovery concerns were raised by a vendor, Davis Polk actually had the balls to say this out loud:
â[F]or parties who wish to serve discovery, you know, they were certainly able to in advance of the hearing today.âWhat? When? You filed a motion on a Friday for hearing on Monday. This sh*t can only be said in bankruptcy court â any other court would laugh these jokers right out of the room. Weâll spare you a few details, but Judge Stickles concluded that some business-day discovery was warranted and kicked everything out ⊠by one day, giving creditors and the UST the option of deposing the debtorsâ witness that evening or early the next morning and otherwise preparing for trial. After what was assuredly a relaxing, sleep-filled night, everyone got back together the next morning. Picking up where they left off, the debtors made a handful of points: (i) the GBRP-Variety deal was the best deal the debtors were going to get, (ii) the UCC supported it, (iii) liquidating was a straight-up worse alternative, and (iv) the payment of professionals was no biggie because the DIPâs carve-out and escrow funding already took care of them (again, must be nice to have that pen in hand, and certainly not one of the reasons the UCC supported the deal).
The UST and vendors made their arguments too: the deal needed additional funding for administrative expenses, including the payment of UST fees (which will screech to a halt the week of January 25, 2025), the hearing should be kicked out, or the cases converted to 7 because the debtors shouldnât be allowed to pick and choose which admin creditors get paid. But itâs bankruptcy court, and while Delawareâs admittedly less egregious than other venues, debtors generally get away with waving their arms while screaming the sky is falling. The court approved the sale, of course, and it closed on January 3, 2025.
Since then, creditors have carpet bombed the debtorsâ docket with requests for payment of their administrative expenses. Weâre not kidding â over 50 motions have been filed so far, asserting millions and millions of dollars worth of claims, and the figure keeps growing.*********** Topping off this sh*t sundae, Nexus dropped a couple juicy cherries in the form of two motions: one to compel the debtors to repay Nexus for its expenses and return its $2.5mm deposit and another to compel the debtors to pay Nexus its $7.5mm break-up fee after the GBRP sale closed, all as required under the Nexus APA.
This thing is going to convert to 7, thereâs no way around it. Taking one landlord at his word, the magnitude of administrative expenses is pushing upwards of $300mm, all accrued within three and a half months. The next hearing is slated for January 21, 2025, and weâll keep you posted as this mound of refuse burns out.
Best of luck to all vendors, landlords, and everyone else left holding the bag. Doubtless, the estatesâ lawyers, bankers, and financial advisors are sending thoughts and prayers.
* We specify âpost-filingâ because we saw this train wreck coming from a mile away. Our six prior updates can be found here: Part I, Part II, Part III, Part IIIÂœ, Part IV, and Part V.
** Nexus is represented by Kirkland & Ellis LLP (Christopher Marcus, Douglas Ryder, Nicholas Adzima) as legal counsel.
*** The UCC is composed of (i) Realty Income Corporation, (ii) Blue Owl Real Estate Capital LLC, (iii) Americaâs Realty, LLC, (iv) Zest Garden Limited, (v) NCR Voyix Corporation (f/k/a NCR Corporation), (vi) Twin Star International, Inc., (vii) Everstar Merchandise Co., Limited.
**** 503(b)(9) claims are pre-petition claims for the value of ordinary course goods used in the business and sold to the debtor in the 20 days before the petition date. Like stub rent, theyâre entitled to administrative priority. If any of this is new-to-you info, weâll suggest perusing 11 U.S.C. § 503(b)(9).
***** âStub rentâ is the portion of rent allocable to the period between the petition date and the next date a rent payment is due under the lease.
****** Judge Stickles â ever the stickler â sustained the US trusteeâs objection to the proposed âsuperpriorityâ status of Nexusâ bid protections because, you know, thereâs literally no authority or support for that in the Bankruptcy Code. Nexus and the debtors lived with it because, like, what else were they gonna do about it?
******* GBRP is represented by Riemer & Braunstein LLP (Steven Fox) and Ashby & Geddes, P.A. (Gregory Taylor) as legal counsel.
******** 1903 Agent is represented by Otterbourg, P.C. (Chad Simon, James Drew) and Richards, Layton & Finger, P.A. (Mark Collins, John Knight, Zachary Javorsky) as legal counsel. Given the affiliations of GBRP and 1903 Agent and how this disaster played out, weâll go ahead and assume Riemer and Otterbourg have been âcoordinatingâ directly or through individuals at Gordon Brothers who don a few different hats.
********* The court held two days of hearings stretching over six hours regarding the sale of D&O claims to Nexus and a couple requests to extend the challenge period under the DIP. To make short shrift of it, the court excised the claims of non-go-forward D&Os but allowed the rest to be sold, which Nexus was good with, and denied the requests.
********** During the interlude, Nexus exited stage left by delivering a coup de grĂące letter to the debtors on December 21 that put the Nexus APA out of its misery.
***********We were somewhat amused to see that chapter 11 bankruptcy alum Thrasio LLC is among them. It appears that the great online Amazon killer and trinket aggregator actually uses Big Lots as an aftermarket reseller, lol.
đ„JOANNsinâ for Another BIG Mess?đ„
Recently, an Ohio-based brick-and-mortar retailer with hundreds of locations and north of half a billion dollars of funded debt filed chapter 11 cases in the District of Delaware looking to pursue a transaction with an at-hand stalking horse supported by a prepetition agent and lender on a truncated timeline.
Sensing déjà vu?
We wouldnât fault you if you were but we already covered Big Lots đ. Enter JOANN, Inc. (âJOANNâ) and 12 affiliates (collectively and together with JOANN, the âdebtors,â and together with their sole foreign non-debtor affiliate, the âcompanyâ).
On January 15, 2025 and after having emerged from bankruptcy a short 8.5 months prior on April 30, 2024, the formerly-Leonard Green & Partners, L.P. (âLGPâ)-owned* debtors filed brand spanking new chapter 11 bankruptcy cases in that Honorable Court (Judge Goldblatt, again), hoping to gain approval by no later than February 22, 2025 of an agreement with Big Lots-buyer Gordon Brothers Retail Partners, LLC (âGBRPâ).** GBRP also happens to be an affiliate of the aforementioned agent and lender under the debtorsâ FILO facility, 1903P Loan Agent, LLC (â1903 Agentâ) and 1903 Partners, LLC (together with 1903 Agent, the â1903 Partiesâ), which isnât sus at all. Man, these three sure have been gallivanting around in quite a few recent bankruptcy cases.*** If this keeps up, weâll be dangerously close to being able to write these articles Mad Libs-style.