Bon-Ton Is Said to Prep Bankruptcy as Rescue Plan Collapses
(Bloomberg) -- Bon-Ton Stores Inc. is planning to file for bankruptcy protection as soon as this weekend after failing to find a last-minute buyer, according to people with knowledge of the matter.
The department-store chain has been struggling with $1.2 billion of borrowings, slumping sales and skittish vendors who scaled back shipments amid last year’s crucial holiday shopping season. After talks with creditors over a potential restructuring plan, the company said in a filing on Monday that negotiations had broken off.
Representatives for Bon-Ton and PJT Partners Inc., the firm’s financial adviser, declined to comment.
Bon-Ton had been discussing a restructuring deal that would have put the company into bankruptcy with the blessing of its creditors, some of whom would get new notes and equity in exchange for their debt, the company said this week in the filing. One plan hinged on the company finding a buyer who would possibly invest between $45 million and $60 million in exchange for a controlling stake of the reorganized retailer. PJT had contacted 21 prospective suitors, according to the documents. “A subset of these parties” were evaluating an investment as of Jan. 19, the filing said.
Creditors would’ve had control of a new property company, holding Bon-Ton’s real estate assets, according to the filing, which included documents used in the negotiations for a pre-packaged bankruptcy plan.
When a buyer didn’t emerge, talks broke down as bondholders pressed the company to liquidate, the people said, who asked not to be identified because the discussions were private. Liquidating the firm’s assets was the secondary proposal the company had been discussing with them, according to the negotiation documents.
The creditors walked away from the table last month, although negotiations continued with a group of higher-ranking creditors who lent against the retailer’s assets, the people said.
While bondholders can usually force a company to act after a default, investors of Bon-Ton’s 8 percent second-lien notes have had limited options. That’s because an agreement among lenders bars the bondholders from enforcing on their collateral without permission from higher-ranked investors that have remained in talks with the company, the people said.
The York, Pennsylvania-based chain, which operates about 260 stores in two dozen states, has been struggling with declining mall traffic as shoppers turn to the internet. Some vendors tightened their demands last year before agreeing to provide more inventory to the company, and creditors have been pushing for a bankruptcy to recover part of their investment.
Bon-Ton said in a filing on Wednesday that it will shutter 47 locations across 17 states this year. Its stores carry names including Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers.
The filing detailing the bankruptcy talks shows Bon-Ton is running low on cash. The documents exchanged between the company and debtholders put the company’s cash balance at no more than $7 million as it heads into what is typically one of the slowest quarters for retailers. In its last quarterly report covering the period ended Oct. 28, it had $7.3 million in cash.
Private equity firm Sycamore Partners had held talks last year to explore purchasing some of the retailer’s assets, Bloomberg News reported in October. An expansion could involve chains that Sycamore already owns, such as Belk Inc., a department store with outlets in 16 southern states.
The value of Bon-Ton’s 8 percent notes due in 2021 has drifted lower since the company said it would skip a Dec. 15 payment and use a 30-day grace period. The notes rose about 3 cents on the dollar on Friday to trade at 18.375, according to Trace. That’s a little more than half of what they fetched in mid-December before Bon-Ton said it was skipping the interest payment. The stock fell 13 percent to 14 cents at 1:38 p.m. in New York on Friday. It has lost 89 percent of its value in the past year.
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