DirectBuy files bankruptcy; noteholder entity to serve as lead bidder

By Caroline Salls

Pittsburgh, Nov. 1 – DirectBuy Holdings, Inc. filed Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the District of Delaware.

The company said in documents filed with the court that it entered into a stalking horse agreement for the sale of its business assets to Derby SPV, Inc., an entity formed at the direction of the holders of its pre-bankruptcy notes.

The proposed purchase price is comprised of a $10 million payment, plus cure amounts, all amounts payable under proposal proceedings and the assumption of liabilities.

The assumed liabilities include member purchase orders, accounts payable, specified claims, taxes and employee obligations.

Chief executive officer Michael P. Bornhorst said in a court filing that DirectBuy’s $10.3 million of holdover notes are scheduled to mature on Feb. 1, and its pre-bankruptcy notes mature on Nov. 5, 2019, at which time an estimated $190 million of principal and interest will be due.

“While the debtors’ operations are financially sound, they are insufficient to sustain existing levels of debt or attract a sufficient amount of refinancing,” Bornhorst said.

In conjunction with the bankruptcy filing, DirectBuy requested court approval to use the cash collateral of its pre-bankruptcy secured parties to fund its operations while in Chapter 11.

According to court documents, DirectBuy has $100 million to $500 million in both assets and debt.

The company’s largest unsecured creditors are trustee and collateral agent The Bank of New York Mellon Trust Co., NA of Chicago, with a $10.32 million unsecured notes claim, and Norcraft Co. of Minneapolis, with a $1.87 million trade debt claim. No other unsecured creditors were listed with claims of $1 million or more.

The company is represented by Cole Schotz PC.

DirectBuy is a Merrillville, Ind.-based members-only showroom and home design center that offers merchandise at manufacturer-direct prices. The Chapter 11 case number is 16-12435.

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