Sports Authority throws in the towel
Sports Authority won’t come out of bankruptcy as an independent company and instead wants to sell off all its holdings.
“It has become apparent that the debtors will not reorganize under a plan but instead will pursue a sale,” company attorney Robert Klyman told Judge Mary Walrath at a hearing Tuesday in U.S. Bankruptcy Court in Wilmington, Del.
But Walrath, concerned that money from liquidation sales was going to pay off certain creditors and not others, threatened to push the case into Chapter 7, under which a trustee would oversee the liquidation.
She postponed that decision until a May 3 hearing to give creditors more time to decide whom they want to direct the liquidation: company management or an outside trustee, according to Reorg Research, a firm that tracks bankruptcy cases.
Either way, a liquidation makes it much more likely that Sports Authority Field at Mile High will carry a different name when the Denver
Broncos take the field next season.
Englewood-based Sports Authority, when it filed for bankruptcy protection in March to rework $1.1 billion of debt, laid out two paths. One was to pare down nonperforming stores and emerge from bankruptcy with its independence intact. The other was to sell everything and cease operations.
Sports Authority initially decided to close or sell 140 of its 464 stores in the U.S. and Puerto Rico, as well as distribution centers and warehouses in Denver and Chicago.
In Colorado, the Sports Castle and a Boulder location were on the closure list. The company had expected to let go about 3,400 of its 15,000 employees.
Vendors, however, didn’t like seeing the merchandise they had consigned sold off in liquidation sales without reimbursement, and they sued. Sports Authority countersued.
Landlords also were upset that the company filed for bankruptcy protection one day after March rents were due, stiffing them out of $27 million.
“They didn’t get very far into this before they hit snags with their suppliers. That tells me they weren’t that close to getting the reorganization done,” said Dan Schniedwind, a credit analyst and retail specialist with Denver Investments.
In the end, creditors weren’t willing to allow the company to continue making large purchases, something required to keep stocking the shelves in even a reduced number of stores.
Plan B, which will now be pursued, involves selling off all the company’s assets to the highest bidders.
“If portions are up for sale, you could see more players come in and bid on them,” Schniedwind said.
Big sporting goods chains such as Dick’s Sporting Goods, Modell’s and Academy Sports represent the most likely buyers, and any locations they acquire would display their signs.
Klyman, a lawyer at Gibson Dunn Crutcher, told the court that major bidders were showing an interest.
In theory, a private equity firm or deep-pocketed buyer might acquire the brand and a few stores or the website. That could offer one route to keeping the Sports Authority name on Mile High Stadium.
Schniedwind described that scenario as highly unlikely — “It is more likely it will be stripped for parts.”
Another unresolved question is who will get to oversee the company’s liquidation — its management team under Chapter 11 or a trustee under Chapter 7.
Unsecured creditors cried foul because Sports Authority, under the terms it signed to obtain bankruptcy financing last month, diverted $109 million to pay back its lenders. Creditors argued those severe terms were forced on the company to ensure those lenders got repaid first.
Walrath said she had a “serious problem” with Sports Authority liquidating its vendors’ products to pay off certain lenders, according to Reorg Research.
But creditors requested more time to decide. That’s because under Chapter 11, Sports Authority is responsible for its rent payments and other administrative costs. But under Chapter 7, the creditors are on the hook for those costs.