(Bloomberg) — Bankrupt retailer Big Lots Inc. it no longer expects to complete an asset sale to private equity firm Nexus Capital Management LP and will begin selling its stores in the coming days to protect the value of its real estate.
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The discount chain, which employs more than 27,000 people, said in a statement Thursday that it continues to look for another way to continue doing business through a transaction that appears to be completed by the end of January if a deal can be closed.
“We all worked extremely hard and took every step to complete a sale on good terms,” said Bruce Thorn, president and CEO of Big Lots. “While we remain hopeful that we can complete an alternative going concern transaction, in order to protect the value of the Big Lots estate, we have made the difficult decision to initiate the GOB process.”
The announcement comes as the company’s inventory valuation was lower than expected, making the economics of the sale to Nexus no longer viable, according to people with knowledge of the matter who asked not to be identified discussing a private matter . At the same time, landlords had pressured the company in court to explain why it had not closed the deal with Nexus, which agreed to buy the company after filing for Chapter 11 in September.
An official committee of unsecured creditors had asked in court Monday that the company either pay tens of millions of dollars in back rent or be liquidated by a court-approved trustee.
Closing stores
Big Lots will declare bankruptcy in about 870 stores, company attorney Brian M. Resnick said Thursday during a hearing before U.S. Bankruptcy Judge J. Kate Stickles.
The company is still in discussions with Nexus and another company about saving “several hundred” stores instead of the entire group that Nexus had originally wanted to acquire, Resnick said. That long-term effort should happen “within a few weeks,” Resnick added.
According to Stickles, there is very little time to make a new deal. “This is what I would characterize as a melting ice cube,” she said.
A representative for Guggenheim Partners, which advises the company, declined to comment. Representatives for Big Lots, Nexus, as well as Kirkland & Ellis, which advises Nexus, and the company’s legal counsel, Davis Polk & Wardwell, did not return messages seeking comment.
Limited cash
Landlords, vendors who supply inventory to the stores and other creditors told Stickles they are concerned about how Big Lots will decide who gets paid with the limited amount of cash the company has left.
At least one group of landlords is convinced that Big Lots does not have enough money to pay the current costs of the bankruptcy, which include not only attorney fees but also inventory and part of the rent. Such administration fees are normally claimed first from the cash of a bankrupt company.
“To some extent, we were the canary in the coal mine with our motion for a status conference,” says owner attorney Ivan Gold, referring to his demand earlier this week that Big Lots go to trial and explain to the judge why the Nexus sale had failed to close.
Columbus, Ohio-based Big Lots has suffered from declining sales for years, including in recent quarters, as rising inflation put pressure on the wallets of price-conscious shoppers. Other retailers, including Conn’s Inc. and LL Flooring Holdings Inc., have come under pressure from a slowdown in housing spending.
Party City Holdco Inc. is planning to file for bankruptcy possibly within the next two weeks, in a process that could lead to the liquidation of its stores, Bloomberg reported. Container Store Group Inc. is also preparing to file for bankruptcy in the coming weeks after mounting losses and escalating liquidity problems, Bloomberg also reported earlier this month.
Last month, Stickles approved the sale, but with the understanding that certain conditions had to be met before the deal could close. These terms included the buyer receiving a debt commitment letter related to the financing of the deal and Big Lots certifying the value of certain assets it is contributing to the deal, according to the purchase agreement.
The case is Big Lots Inc., No. 24-11967, in the United States Bankruptcy Court for the District of Delaware.
(Updates to add details as of the December 19 hearing.)
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