Bon-Ton Stores files for Chapter 11, to explore alternatives

New York, Feb. 5 – Bon-Ton Stores, Inc. made a Chapter 11 filing in the U.S. Bankruptcy Court for the District of Delaware on Sunday, according to a news release and court filings.

The company said it will use the bankruptcy process “to explore potential strategic alternatives to maximize value for the benefit of its stakeholders.”

Actions may include the sale of the company or some of its assets.

“We are currently engaged in discussions with potential investors and our debtholders on a financial restructuring plan, and the actions we are taking are intended to give us additional time and financial flexibility to evaluate options for our business,” said Bill Tracy, president and chief executive officer, in the news release.

According to an asset sale procedures motion, the company is “first and foremost” looking to reorganize under a Chapter 11 plan that would keep its business intact through the conversion of second-lien notes into equity and new second-lien notes.

“The reorganization path, however, requires a third-party strategic sponsor to invest new capital, alongside a new money investment by the second-lien noteholders, to assume majority ownership of the reorganized debtors,” the motion said. As a result, the company said the proposed sale would be an alternate restructuring option.

Under the proposed procedures, bids for Bon-Ton’s assets would be due by 5 p.m. ET on April 2, and an auction would be held on April 9, if necessary.

If a stalking horse bid is selected, competing bids must equal or exceed the sum of that bid, any break-up fee or expense reimbursement to be paid if the stalking horse bidder is not the winning bidder and a $200,000 overbid amount.

The company’s wholly owned subsidiary, Bon-Ton Department Stores, Inc., previously missed a $14 million interest payment due Dec. 15 on its 8% second-lien senior secured notes due 2021.

Bon-Ton said it received a commitment for up to $725 million of debtor-in-possession financing from its existing ABL lenders to support the company’s operations during the Chapter 11 process.

Existing ABL borrowings will be rolled into the DIP facility.

The DIP agreement will mature on Nov. 1, 2018. Tranche A loans will carry interest at Libor plus 275 basis points while tranche A-1 loans will be at Libor plus 950 bps.

The company’s stores and online activities will continue operating as usual. Bon-Ton previously announced that it will close 47 stores this year, of which four closed in January. One further store is near completion and 42 additional stores began closing sales on Feb. 1.

The Chapter 11 filing caused an event of default on Bon-Ton Department Stores’ $350 million of notes and on the company’s ABL credit facility with Bank of America, NA as agent. As of Feb. 3, $493 million was borrowed on the bank facility.

Bon-Ton listed $1,742,558,000 of debts and $1,586,595 of assets in its Chapter 11 filing.

The top eight unsecured creditors are all trade claimants: Spark Foundry with an $8.75 million claim, Estee Lauder with a $5.07 million claim, HanesBrands with a $3.63 million claim, Keurig Green Mountain Inc. with a $3.51 million claim, Michael Kors USA Inc. with a $2.82 million claim, Perry Ellis with a $2.36 million claim, Ralph Lauren with a $2.20 million claim and Nine West with a $2.15 million claim. At number nine is the Redevelopment Authority of the City of Milwaukee with a $1.9 million contingent claim under a lease agreement and the 10th largest claim is a $1.58 million trade claim owed to Under Armour.

The only shareholder owning more than 10% is Tim Grumbacher of York, Pa., who holds all the class A common stock and 21% of the common stock, including the class A stock on an as-converted basis.

Paul, Weiss, Rifkind, Wharton & Garrison LLP is legal counsel, AlixPartners LLP is restructuring adviser and PJT Partners, Inc. is financial adviser.

The Chapter 11 case number is 18-10248.

Bon-Ton is a York, Pa.-based department store operator.

Caroline Salls contributed to this report

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