Ellett Brothers, the firearms distributor that filed for bankruptcy protection on June 10, has until July 24 to find a buyer in a going concern sale of the company’s assets to avoid an outright liquidation.

United Sporting Cos, the parent of Ellett Brothers, filed for bankruptcy protection in Delaware with an intention to liquidate. The business also includes AcuSport, a Bellefontaine, OH-based distributor of shooting and hunting products acquired in May 2018. Other subsidiaries include Evans Sports, Inc., Jerry’s Sports, Inc., Simmons Gun Specialties, Inc., Bonitz Brothers, Inc., and Outdoor Sports Headquarters, Inc.

The company reported EBITDA of $4 million on net sales of $557 million last year—well below the company’s average of $885.3 million in sales from 2012 to 2016.

In the brand’s initial filings, United Sporting Cos. said it had hired Houlihan Lokey in January to find a buyer, and multiple parties expressed interest, but the process ultimately failed to draw an attractive enough offer.

Employees in Chapin have already been told that their facility will close permanently by August 5. The overall company serves 20,000 retailers in all 50 states and carries brands such as Glock, Remington, Ruger, and Smith & Wesson.

The July 24 deadline came after an objection to the speedy liquidation process from the case’s committee of unsecured creditors.

In the motion, Bankruptcy Judge Laurie Selber ruled that United Sporting Cos. has to provide the committee’s financial advisor, Emerald Capital Advisors, and the committee with “reasonable access” to relevant documents to support any due diligence requests by interested parties interested in pursuing a sale.

United Sporting Cos. were still authorized to continue the company’s “self-liquidation of assets absent further order of this Court.”

In objecting to United Sporting Cos.’s move to jettison self-liquidation, lawyers representing the unsecured creditors’ committee in court papers noted that United Sporting Cos. had retained Houlihan Lokey Capital in January 2019 to run a going concern sale process. Houlihan Lokey consequently solicited 53 potential purchasers and received four offers to consummate a transaction. The unsecured creditors’ committee wrote, “For reasons still unbeknownst to the Committee, the Debtors’ board of directors decided to terminate the sale process prior to the Petition Date.”

The committee further said that during informal phone calls with bankers formerly involved in the sale process, Emerald Capital Advisors learned that Houlihan believed it had located a fully financed stalking horse purchaser that would have purchased substantially all of the United Sporting Cos.’s assets, saved 350 jobs and preserved a customer for the company’s trade vendors. Emerald also said the buyer would have led to a greater valuation and higher recoveries than the current self-liquidation.

The committee contended in court papers, “For some reason, however, the reference to a fully financed stalking horse purchaser never made its way into the First Day Declaration. Instead, the debtors focused their attention on a complaint filed on May 23, 2019, by Prospect Capital Corporation (“Prospect”) against certain of the Debtors’ officers, directors, and equity investors as the reason for the pivot to a self-liquidation.”

As reported by Greenville News, Prospect Capital, a lender to United Sporting Cos. and the company’s second-largest equity holder, charged that $189 million in loans had been redirected largely to Wellspring Capital Management, United Sporting Cos.’s owner.

The committee further said Emerald Capital Advisors’ follow-up with the list of 53 potential purchasers found some still to be interested, including some indicating they were more interested in a sale in bankruptcy proceedings due to the advantage of bankruptcy protection. Emerald Capital Advisors’ also identified other potential bidders outside the 53 that indicated an interest in acquiring United Sporting Cos.

The committee wrote, “There is little to no reason not to pause the Debtors’ proposed process to allow Emerald to explore a sale. The inventory of firearms is not, upon information and belief, losing value while an alternative sale process is considered.”

In objecting to the committee’s motion, lawyers representing United Sporting Cos. contended that a “fully-financed stalking horse purchaser ‘never made its way into the First Day Declaration’ because a fully-financed stalking horse purchaser did not—and still does not—exist.”

The lawyers also wrote that Prospect’s lawsuit against United Sporting Cos. “was not ‘the reason for the pivot to a  self-liquidation.’ Indeed, the Debtors had no knowledge of the Prospect lawsuit when the Debtors determined that a going-concern sale was not a viable option.”

United Sporting Cos. said it has long had no objection to the committee’s “desire to ‘kick the tires’ on a going-concern sale” but also stressed that “halting or otherwise slowing down” the orderly liquidation process over “speculation” about an interested buyer possibly arriving will impact recoveries.

Wrote United Sporting Cos.’s lawyers, “Every dollar spent chasing a going-concern sale is a dollar less recovered by the Prepetition Term Loan Lenders—the Debtors’ fulcrum creditors. Indeed, the Debtors understand that the Prepetition Secured Parties share the Debtors’ concerns regarding any post-petition sale process that results in the expenditure of additional time or cost of these Chapter 11 Cases.”

The reasons for the bankruptcy filing included too much debt, discounting caused by excess inventory in the marketplace and large retailers moving away from selling firearms.

In particular, bankruptcy court papers cited falling firearms sales following the election of Donald Trump and Dick’s Sporting Goods’ move to become more restrictive on firearms sales following the school shooting in Parkland, FL. Bass Pro Shops’ purchase of Cabela’s and Gander Mountain’s bankruptcy also disrupted the firearms marketplace. Finally, hurricanes in the Southeast U.S., where Ellett Brothers services a big base of accounts, further stymied demand, according to court papers.

The case is SportCo Holdings Inc., 19-11299, U.S. Bankruptcy Court District of Delaware.

Photo courtesy Ellett Brothers