Eastern Outfitters, the parent of Eastern Mountain Sports and Bob’s Stores, plans to hold a private sale to Sports Direct rather than hold a bankruptcy auction as part of a deal reached with unsecured creditors.
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.
As reported, the Official Committee Of Unsecured Creditors had said in court papers that 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 Portiere’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 bid included a $3.5 million break-up fee.
An article from Law360 noted that at a hearing last week regarding court approval for its debtor-in-possession financing and stalking horse bid procedures, unsecured creditors agreed to a private sale to Sports Direct. As part of the agreement, Sports Direct will cover severance claims for unpaid rent and not get rights to avoidance actions. Unsecured creditors would waive its right to challenge the liens on Eastern Outfitters’ second-tier debt, which Sports Direct purchased before the petition date to support its continued discussions regarding the sale.
According to the Law360 report, Sports Direct will choose which of the 86 EMS and Bob’s Stores will close while the debtor will administer any liquidations. A sales hearing was set for April 19, pending court approval of the updated sales process.
Before filing for bankruptcy on February 9, Eastern Outfitters reached a last-minute agreement to have Sports Direct acquire substantially all the business to avoid an all-out liquidation. The retailer has said it was unable to find a buyer before filing.
Photo courtesy Eastern Mountain Sports