As expected, Golfsmith International Holdings LP filed for bankruptcy in Delaware and Ontario, Canada early today as part of a debt restructuring plan, backed by major bondholders, that includes selling Golf Town Canada Inc.

Headquartered in Austin, TX, Golfsmith International is the largest specialty golf retailer in the world. It has 109 stores in the United States operating under the Golfsmith banner and 55 stores in Canada operating under the Golf Town banner. The company announced it had filed bankruptcy toward the bottom of a press release announcing plans to sell Golf Town to an investment group that will be led by Fairfax Financial Holdings Limited (Fairfax) and certain investment funds managed by Signature Global Asset Management, a division of CI Investments Inc. (CI), which together control more than 40 percent of Golfsmith’s second lien secured notes due in 2018.

Golfsmith said Fairfax and CI have also agreed to recapitalize and restructure its U.S.-based business, Golfsmith International Holdings, Inc. The Golf Town and Golfsmith transactions are designed to provide the businesses with a sustainable capital structure and retail footprint and provide stability for customers, suppliers, employees and other key stakeholders.

The transactions are the result of a months-long strategic review with key stakeholders and Jefferies LLC aimed at addressing liquidity challenges, reducing debt and positioning the company for future growth. At the end of the process, Golfsmith International’s board of directors determined that the transactions and bankruptcy filings are in the best interests of the company and its suppliers, employees, customers and other key stakeholders.

Golfsmith International intends to use proceeds from the Golf Town transaction, which includes the sale of certain leases, inventory and working capital assets, to repay a substantial portion of Golfsmith International’s first lien credit facility. That will reduce debt and interest costs while Golfsmith International reorganizes through what it calls  the “Golfsmith Transaction.” The company expects the retail locations that are not acquired by the purchaser of Golf Town’s assets will be closed in an orderly manner.

Ultimately, Golfsmith International expects to cancel existing secured notes and issue new second lien notes, plus 100 percent of the equity in a restructured company, to existing secured notes holders. The new secured notes will have a principal amount of approximately $35 million, an extended maturity date and an option for restructured Golfsmith to pay interest in kind rather than in cash.

The Golfsmith transaction will also include a refinancing of the remaining portion of a credit facility, following its pay-down from the proceeds of the Golf Town transaction, and an operational restructuring of the Golfsmith business that is also expected to result in the closure of certain underperforming stores and the sale of excess inventory.

Some other secured note holders have also agreed to support the restructuring plan, and Golfsmith International is working to obtain the support of others.

“The CCAA and Chapter 11 proceedings will provide the appropriate forums for the completion of the transactions, the rationalization of the Golfsmith International’s retail store network and the completion of other restructuring activities in an orderly manner for the benefit of stakeholders,” Golfsmith International said in a statement. CCAA stands for the Companies’ Creditors Arrangement Act of Canada, which Golf Town is using to seek relief from creditors in the Ontario Superior Court of Justice.

Golfsmith International is currently working with its first lien lenders to finalize the terms of a $135 million debtor-in-possession financing facility (the “DIP Facility”) to provide funding to the business while Golfsmith International advances and implements the transactions. The DIP Facility is subject to approval by the CCAA Court and the Bankruptcy Court.

In connection with the DIP Facility, Golfsmith International will undertake a dual track sale process in the Chapter 11 proceedings to explore the potential for an alternative sale transaction for the Golfsmith Business that maximizes value for the benefit of stakeholders. Golfsmith International intends to undertake this process concurrently with its efforts to advance the Golfsmith transaction with the supporting note holders, and to take steps to refinance or repay the Credit Facility obligations in connection with the restructuring.

Completion of the Golf Town transaction is subject to, among other things, approval by the CCAA Court and the receipt of all necessary regulatory approvals. The Golf Town Purchase Agreement provides for effective closing of the Golf Town transaction on October 31, 2016.

“We believe that the Golf Town transaction and the Golfsmith transaction provide an overall going concern solution for the Golfsmith International’s operations and will provide Golf Town with a streamlined sustainable retail footprint and Golfsmith with an improved capital structure. Completion of the transactions will position Golf Town and Golfsmith to continue to generate value for the benefit of stakeholders,” said David Roussy, CEO of Golfsmith International. “Today represents a significant step forward for the long-term viability of the Golf Town and Golfsmith businesses. We will continue in our commitment to provide our customers with the exceptional service and high-quality golf products they have come to expect from us.”

“David Roussy and the entire team have done a tremendous job preserving value for stakeholders through this transition and putting together the Golf Town and Golfsmith transactions,” said Paul Rivett, president of Fairfax. “We look forward to working with David and his team along with its employees and stakeholders.”

Golf Town and Golfsmith operations will continue uninterrupted during the CCAA and Chapter 11 proceedings, and obligations to suppliers for goods and services provided to Golfsmith International following the initiation of the CCAA and Chapter 11 proceedings will continue to be met. The commencement of CCAA and Chapter 11 proceedings will enable Golfsmith International to continue normal course operations for the benefit of its stakeholders pending the completion of the transactions.

Golfsmith International, headquartered in Austin, TX, is the largest specialty golf retailer in the world. It has 109 stores in the United States operating under the Golfsmith banner and 55 stores in Canada operating under the Golf Town banner. The company also offers shopping at golfsmith.com and golftown.com.