💥New Chapter 11 Bankruptcy - Big Lots Inc.💥
BIG Lots files BIG chapter 11 cases w/ a stalking horse in the District of Delaware.
On September 9, 2024, Ohio-based Big Lots Inc. and 18 affiliates (collectively, the “debtors”) filed chapter 11 bankruptcy cases in the District of Delaware (Judge Stickles); they’re a home discount retailer with a self-described mission of helping customers “Live BIG and Save LOTS.” Sadly, we did not make that up.
But oh boy, where do we start? How about our initiation on this burning piece of trash from nearly a year ago:
And our five subsequent updates:
Yes, five. We’d forgive you for asking, “PETITION, why did you spend so much time on this one retail name?” And the answer is we would’ve rather spent time elsewhere but EVERY SINGLE QUARTERLY EARNINGS REPORT FROM BIG LOTS HAS BEEN NOTHING SHORT OF DISASTROUS. Indeed, the most recent 10-Q reflected Big Lots’ twelfth consecutive quarter of same store sales declines.
THAT’S THREE YEARS, LOL.
Our prior coverage did a good job of this but don’t just take our word for how sh*tshow-y this sh*tshow has been. Here’s a quick summary from the debtors’ first day declaration:
“Big Lots believes that its brand image—rooted in unmistakable value, surprising products, and an exceptional shopping experience—is an important part of why its customers choose to shop at its stores and a critical element of the value proposition conveyed through all customer touchpoints.”
“Over the past decade, multiple large brand store-front retailers have experienced distress attributed to a common set of underlying factors: the marked shift by consumers towards e-commerce, the resulting loss of instore foot traffic and in-store sales, the difficulties presented by maintaining a right-sized real estate portfolio and distribution network, and diminishing profit margins across a broad spectrum of retail product verticals.”
Lol, color us surprised. The brand image of being a heavy discount retailer has been compromised. When the business’ entire competitive edge is pricing, inflation can be a b*tch.
The company has made multiple turnaround attempts to taper expenses in the face of slowing sales. There was “Operation North Star” in ‘19, then “Project Springboard” in ‘23. Neither were successful so the debtors resorted to sale leasebacks as a way to sure up liquidity issues (e.g., the sale of the California distribution center to Blue Owl Capital for total proceeds of $305.7mm).
But there’s only so much you can do when your KPIs look like this:
Again, twelve straight quarters of same store sales declines, y’all.
The debtors tried once more to right size the business through a $200mm term loan facility from Gordon Brothers Capital in April ‘24, but by July ‘24, the debtors realized that nothing was going to tame this dumpster fire and management started the process of torching ~300 stores.*
And while none of the debtors’ previous strategic efforts were able to stave off chapter 11 cases, apparently they were enough to attract the attention of potential bidders. Yep, we got a stalking horse for this distressed brick and mortar retailer! Hallelujah!
The contemplated stalking horse bidder is Nexus Capital Management LP (“Nexus”), which sports a portfolio that includes names like Dollar Shave Club, TOMS, and, home furnishing company, Resident Home. These are millennial-targeted brands that are quite literally, the antithesis to Big Lots.
But maybe it’s time the >50 year old discount retailer got a 21st century makeover. Subscription service for scented candles? Minimalist Apple-inspired storefronts? Count us in. We even got a new logo for y’all:
Regardless of what plans Nexus has for the crippled retailer, the debtors are sitting pretty with the $760mm stalking horse bid in hand.** That should be more than enough to cover the debtors’ prepetition indebtedness:
There are also two DIP facilities coming in: $550mm in a DIP ABL facility and $157.5mm in a DIP term loan facility. Yes, there are obviously roll-ups in there. Specifically, the DIP ABL facility features a creeping roll-up of the prepetition ABL facility while the DIP term loan facility will roll-up $75mm of the prepetition term loan facility upon entry of an interim order with the remainder of the prepetition amount to be rolled-up upon entry of a final order. If you did the math correctly, that’s $35mm in new money available under the DIP term loan facility.*** There are a few interest rate options for the DIP ABL facility but the SOFR rate option accrues at SOFR + 3.5%. The interest rate on the DIP term loan facility is SOFR+11.25%.****
In total, pretty BIG news here: a distressed retailer with a robust DIP credit facility and a stalking horse purchaser to boot.
That’s a rarity these days.
The debtors are represented by Davis Polk & Wardwell LLP (Brian Resnick, Adam Shpeen, Stephen Piraino, Ethan Stern) and Morris, Nichols, Arsht & Tunnell LLP (Robert Dehney, Sr., Andrew Remming Tamara Mann, Sophie Churchill, Casey Sawyer) as legal counsel, AlixPartners LLP as financial advisor, A&G Realty Partners, LLC as real estate advisor, and Guggenheim Securities, LLC (Stuart Erickson) as investment banker. Gordon Brothers affiliate, 1903P Loan Agent LLC, is represented by Richard Layton & Finger PA (Mark Collins, John Knight, Zachary Javorsky) and Otterbourg PC (Chad Simon, James Drew) as legal counsel, and Berkeley Research Group, LLC as financial advisor. PNC Bank, National Association is represented by Choate, Hall & Stewart LLP (John Ventola, Jonathan Marshall, Jacob Lang) and Blank Rome LLP (Regina Kelbon, Stanley Tarr, Jordan Williams) as legal counsel, and Berkeley Research Group, LLC as financial advisor. Nexus Capital Management LP is represented by Kirkland & Ellis LLP (Christopher Marcus, Douglas Ryder, Nicholas Adzima) as legal counsel.
*Additional waves of store closings will continue through the ch 11 process.
**The proposed break-up fee under the contemplated stalking horse agreement is $7.5mm.
***$25mm of the new money will be available upon the entry of an interim order and $10mm upon the entry of a final order.
*****The DIP term loan facility decreases to SOFR+9.75% following the entry of a final order.
Company Professionals:
Legal: Davis Polk & Wardwell LLP (Brian Resnick, Adam Shpeen, Stephen Piraino, Ethan Stern) and Morris, Nichols, Arsht & Tunnell LLP (Robert Dehney Sr., Andrew Remming, Tamara Mann, Sophie Churchill, Casey Sawyer)
Financial Advisor: AlixPartners LLP
Real Estate Advisor: A&G Realty Partners, LLC
Investment Banker: Guggenheim Securities, LLC (Stuart Erickson)
Claims Agent: Kroll (Click here for free docket access)
Other Parties in Interest:
DIP Term Loan Agent and Prepetition FILO Term Loan Agent: 1903P Loan Agent LLC
Legal: Richard Layton & Finger PA (Mark Collins, John Knight, Zachary Javorsky) and Otterbourg PC (Chad Simon, James Drew)
Financial Advisor: Berkeley Research Group, LLC
DIP ABL Agent and Prepetition ABL Agent: PNC Bank, National Association
Choate, Hall & Stewart LLP (John Ventola, Jonathan Marshall, Jacob Lang) and Blank Rome LLP (Regina Kelbon, Stanley Tarr, Jordan Williams)
Financial Advisor: Berkeley Research Group, LLC
Stalking Horse Bidder: Nexus Capital Management LP
Kirkland & Ellis LLP (Christopher Marcus, Douglas Ryder, Nicholas Adzima)