Unsecured creditors in the bankruptcy case of Eastern Outfitters, the parent of Eastern Mountain Sports and Bob’s Stores, are objecting to Sports Direct being named the stalking horse bidder in an upcoming auction of the company’s assets.
At the same time that Eastern Outfitters filed for bankruptcy on February 6, Sports Direct, the U.K.-based sporting goods chain, committed to serve as the stalking horse bidder for its assets. Sports Direct also agreed to purchase its outstanding second lien debt from Versa, which had acquired the company out of bankruptcy proceedings last year; as well as to serve as the DIP (debtor-in-possession) lender in the chapter 11 case.
In its objection, the Official Committee Of Unsecured Creditors said it “does not object to the sale to Sports Direct in principle: the transaction, if consummated, would preserve jobs and allow at least some of the debtors’ stores to continue operating post-sale.”
But it called the stalking horse bid “an inherently unfair sale process,” with a “highly conditional stalking horse agreement that exposes the estates to significant risk.”
The objection noted, “The Bid Protections and SportsDirect’s credit bidding rights work in tandem to discourage any third parties from investing resources in performing proper due diligence and, ultimately, submitting a competing bid for the debtors’ assets.”
The committee also noted that the agreement can be unilaterally terminated by Sports Direct “under a host of circumstances, which would render these estates administratively insolvent.”
In defending the stalking horse bid, Eastern Outfitter’s lawyers basically noted that the alternative to accepting Sports Direct’s proposal was a liquidation. Indeed, the retailer said it was “fully prepared” to liquidate ten days before the bankruptcy petition date.
The retailer also said Sports Direct further provided a $10 million emergency loan to the debtors on a junior basis six days prior to the petition date to help complete negotiations on the stalking horse bid and DIP facility. The overall funding, supported by Sports Direct, has helped support a six-month process to best maximize Eastern Outfitter’s assets.
During that time, 140 potential bidders, including 61 strategic parties and 79 financial participants, have been contacted by Eastern Outfitters and 34 parties (including parties from the petition sales process) have executed confidentiality agreements and engaged in the diligence process. Eastern Outfitters stated, “No potential bidders have raised issues in regard to the fairness or impartiality of the process.”
Photo courtesy Eastern Outfitters
