Northwest Arkansas Democrat-Gazette
Halloween vendors unite to abate Party City fears
As Party City Holdco Inc. wades through bankruptcy, some of its most important vendors are banding together to negotiate better trade terms for a event the company relies on: Halloween.
Halloween orders are placed months ahead of time, meaning costume suppliers have to decide soon what they’re willing to ship to the bankrupt party supplier and on what terms. But with the company’s future still in the hands of a federal judge, some suppliers are wary of waiting until after Halloween for payment.
“It’s crunch time,” said Jason Torf, an attorney representing the group. “The goal of the committee is to support Party City, but in a way that protects these vendors.”
New Jersey-based Party City has proposed paying the vendors two months after Halloween, by Dec. 31, according to Torf. That months-long wait puts vendors in a precarious position: taking on millions of dollars of risk without a guarantee of how the company’s restructuring will unfold. What’s more, Party City still owes some suppliers money from pre-bankruptcy shipments, court papers show.
In an emailed statement, a Party City spokesman said the company “appreciates the significant positive support we’ve received from our valued vendor base as we continue to advance our process and best position the business on stronger financial footing for the future.”
The newly formed vendor group is tied to the Halloween & Costume Association, a trade group, and includes some of the biggest Halloween suppliers in the country, according to Torf. It was formed in part to talk with the company about an agreement that ensures protection in case Party City runs out of money.
“This seems to be the game of ‘who has more leverage,’” said Nancy Rapoport, a professor who specializes in bankruptcy at UNLV’s William S. Boyd School of Law. Still, she suspects that “these terms won’t fly, now that the vendors have banded together.”
Adding to the worry is Party City’s bankruptcy financing, which is scheduled to mature no later than June. The credit facility contains a number of triggers that require the company to fulfill certain obligations — like submitting a lender-approved restructuring plan — or the funds could disappear.
While December holidays are crucial for most retailers, Halloween is the big event for Party City. The company has leaned hard into that season in recent years, opening more than 100 pop-up “Halloween City” locations.
Historically, the chain has “realized a significant portion of its revenues” in the last quarter of the year, principally due to Halloween sales, David Orlofsky, the company’s chief restructuring officer, said in bankruptcy court papers.
So far, it appears that the company’s bankruptcy will be quick, according to Philip Brendel, a senior credit analyst for distressed debt at Bloomberg Intelligence. Even still, suppliers might have some room to negotiate. “Whenever you’re a vendor, your power is that you can hold back shipments and not deliver product,” he said. “It doesn’t strike me as all that unusual that they’d be trying to create some leverage there.”
The tension with suppliers isn’t new. As the company faced liquidity issues in recent years, some vendors started to demand cash in advance or prepayment for goods, court papers show.
According to Orlofsky, “such tensions are particularly detrimental” due to the big lead-time needed for seasonal inventory, like costumes. If there’s a delay or interruption to Party City’s ability to place such orders and pay those vendors, that could “have a ripple effect on liquidity for months to come,” he said.