Thursday, June 21, 2018
Fallout from Retail Bankruptcies -- Landlords and Junior Creditors v. Private Equity
By Bill Siegel
- In the Claire’s Stores bankruptcy case, in addition to being over leveraged, creditors are complaining that private equity has exercised too much control over the restructuring process to the detriment of creditors. Creditors are complaining in particular about the plan proposed by private equity in which private equity will loan Claire’s $574 million to finance its reorganization and in exchange, Claire’s will pay private equity $1.5 billion.
- In the Nine West bankruptcy, creditors argue that in addition to private equity financing the takeover with expensive debt, they also acquired three of Nine West’s subsidiaries at below market rates and then sold two of them to third parties while the third was sold back to Nine West -- earning private equity hundreds of millions of dollars.
- In an attempt to keep junior creditors from attaching certain assets, J. Crew transferred its brand to a subsidiary of J. Crew. Presumably, this conveyance occurred with the approval of the secured lender while also benefitting private equity. Concern is growing among creditors of both PetSmart and Revlon that the same may occur to them.
- Creditors in the Tops Friendly Markets grocery chain bankruptcy are seeking to investigate the leveraged buyout that funded private equity’s acquisition as well as the fees and dividends they received.
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