Shopko bankruptcy: Retailer presses on toward a sale
Shopko and bank representatives called the retailer’s plan to shrink to about 100 stores a “second chance” at saving the company.
Shopko’s attorney Steven Serajeddini said a new operating budget submitted Thursday in federal bankruptcy court accounts for lower-than-expected revenue from the sale of Shopko’s pharmacy operations, while covering the company’s operating expenses and debt payments.
U.S. Bankruptcy Judge Thomas Saladino approved the budget during a two-hour hearing on Thursday that pitted lenders whose loans are the company afloat against vendors and landlords who argued the new budget leaves little left for other creditors who are due payment for inventory and services they have provided.
Serajeddini said the budget reflects lenders’ willingness to make concessions to help salvage the company, preserve some jobs and make Shopko attractive to potential investors or buyers.
“We are at rock bottom for what (lenders are) willing to do,” Serajeddini said during a two-hour hearing in bankruptcy court in Omaha, Nebraska. “They’ve included a number of concessions, but we are at their bottom line.”
Shopko said the budget would include funds to pay landlords for rent incurred since it filed for bankruptcy. Saladino overruled calls to compel Shopko to shift funds to pay certain claimants at the expense of debt payments, calling it a difficult decision to make.
He said the company was making the necessary decisions to reorganize and remain a viable company. “Everything else is just going to have to wait,” he said.
The budget projects $531 million in revenue of which $315 million would fund ongoing operations and merchandise costs. The remaining $216 million would largely be used to pay down bank debt, with only some funds set aside for rents incurred since the company filed for bankruptcy protection.
The company’s 30 largest unsecured creditors are owed a combined $122.8 million, according to Shopko’s Jan. 16 bankruptcy filing.
Bank and company attorneys said the reduction to a smaller number of stores reflects a “second chance” at avoiding a going-out-of-business sale. They said paying off the company’s debt is a key part of the path forward for the company.
In seeking to emerge as a viable business, the Ashwaubenon-based retailer is seeking to follow in the footsteps of Sears, for which a sale was approved Thursday, and avoid a liquidation like those that ended Bon-Ton Stores Inc. and Toys R Us.
Thursday’s hearing set terms under which Shopko will now seek an investor to infuse capital or a buyer willing to take control of the company. The auction, scheduled for later this month, will also consider bids from firms interested in liquidating Shopko’s assets and shuttering the company.
Shopko management has been in contact with potential buyers and investors since August 2018, and the decision to close 251 of its 367 stores stores was made partly in response to input from those companies.
“Buyers are focused on a smaller footprint that is centered more in Shopko’s core Midwestern market,” Serajeddini said Thursday. “Part of that is a natural result of the retail environment. We do think those buyers exist and intend to go find them.”
Initial bids are due by Feb. 25. Qualified bidders would be invited to the auction at 8 a.m. Feb. 26. The auction plan gives Shopko the right to pay a bidder a $1 million “work fee” in order to encourage other bids, a tactic commonly referred to as a “stalking horse bid.”
Under its reorganization plan, Shopko must find a buyer or investor, or show it can self-finance its operations by March 14. If it cannot, it could trigger liquidation of the company.
Shopko’s parent company, Specialty Retail Shops Holding Corp., and 12 of its subsidiaries filed for Chapter 11 bankruptcy protection from creditors on Jan. 16, citing excessive debt and a decline in brick-and-mortar retail store sales as customers’ shopping patterns changed.
In court documents, the company reported assets of less than $1 billion and liabilities of between $1 billion and $10 billion. It also laid out a schedule through April 15 that the company must meet in order to emerge from bankruptcy as a going concern that can still operate a smaller company.
Shopko was founded in Green Bay in 1962