Sports Authority won’t reorganize and intends to liquidate
April 27, 2016 11:00 AM
(Bloomberg)—Sports Authority Inc. may be worth so little that it can barely cover the cost of its bankruptcy.
If potential buyers follow through on their “letters-of-intent,” and the company liquidates its inventory, Sports Authority will raise enough cash to cover the administrative costs of the bankruptcy, company financial adviser Steve Coulombe, with FTI Consulting Inc., told a judge overseeing the case. Sports Authority is No. 287 in the Internet Retailer 2016 Top 500 Guide with Internet Retailer-estimated 2015 web sales of $85.5 million, according to Top500Guide.com data.
While Coulombe didn’t put a figure on the costs, a committee of lower-ranking creditors said in court papers that it was almost $100 million so far, with some claims yet to be quantified. The company owes creditors more than $1 billion.
The testimony came out at the same hearing in which the company’s main lawyer said Sports Authority has abandoned any hope of reorganizing and exiting bankruptcy as an independent company. Instead, the chain will sell itself off in pieces, hoping some of the stores will remain open.
The company “will not be able to reorganize under a plan, but will instead pursue a sale,” Robert Klyman said at the start of the hearing.
Next month, the company will auction off almost all of its 463 stores in two batches: some with the hope that a buyer will keep them open and operating, others after all the merchandise has been liquidated. Before the company filed for bankruptcy protection in March, it had planned to liquidate all the inventory in about 140 stores and then sell or cancel their leases. The rest of the stores would be either reorganized or sold at auction as part of a smaller chain.
Coulombe was testifying in favor of a new loan that Sports Authority says it needs to help cover the cost of operations while it tries to sell its assets. Lower-ranking creditors and store landlords oppose the new loan. When their lawyers pressed him to say whether the offers would also cover hundreds of millions of dollars owed to more senior lenders, Coulombe wasn’t allowed to answer by the judge.
His testimony on Tuesday in Wilmington, Del., was interrupted by an attorney representing the company’s term lenders, who warned that too much detail could jeopardize the sale process. U.S. Bankruptcy Judge Mary Walrath agreed and instructed Coulombe not to divulge more.
Sports Authority, based in Englewood, Colo., filed for bankruptcy burdened by high debt from a $1.3 billion buyout in 2006. It had discussed selling stores and intellectual property to rival chain Dick’s Sporting Goods Inc. (No. 62 in the top 500) and others prior to the filing.
The case is In re Sports Authority Holdings Inc., 16-10527, U.S. Bankruptcy Court, District of Delaware (Wilmington).