Joe's Sports, Outdoors & More, the Northwest retailer formerly known as G.I. Joe's, has filed for Chapter 11 bankruptcy protection. Initial reports indicated that the retailer, which filed under G.I. Joes Holding Corporation and G.I. Joes, Inc., planned to keep all 30 of its stores open while it explored options including obtaining credit, raising additional capital from third parties or finding a strategic partner. Court documents provide a different view, one that favors the liquidation of all assets by the end of the month.
In early reports, a Joe's spokesman said the filing gave them more time to “continue to operate all of (Joe's) 30 stores while it can work on options.” The spokesman conceded that “One option is a sale,” but he didn't believe that was the exclusive option.
The decision to file for bankruptcy follows a strategic review announced by the company last month during which it temporarily laid off warehouse workers and explored ways to bring more capital to the business.
Joe's said it had obtained $51 million in new borrowings from Wells Fargo Retail Finance, subject to court approval. It also said it will continue to pay its employees wages and benefits. The Debtor-in-Possession financing “contemplates” a sale of the Joe's business within approximately 30 days of the petition date.
The chain was acquired in 2007 by San Francisco-based private equity firm Gryphon Investors. Gryphon said they had invested equity capital in the business at this time last year to provide additional liquidity as the economy and retail environment worsened. They indicated that they were prepared to invest additional capital once again to help restructure the company outside of court, but they could not “come to mutually acceptable terms with the lenders.”
Based on court documents obtained by Sports Executive Weekly, Joe's indicated that the amount outstanding under a Wells Fargo loan and security agreement was approximately $47 million on the petition date. That facility is secured by a first priority lien on all of the retailer's assets, including inventory, accounts receivable, equipment and intellectual property. A second loan and security agreement with Wells Fargo that also includes Crystal Capital Fund Management as administrative agent and collateral agent had approximately $35.2 million outstanding on the petition date.
Joe's had retained Financo, Inc. as an investment banker prior to the bankruptcy filing to pursue a sale of the retailer “as a going concern.” The filing states they intend to use the Chapter 11 process to either “gain access to liquidity” or “execute on one or more options to create value for stakeholders.” The second option could include the sale of the business as a going concern, a liquidation of the stores, a going-out-of-business sale at some or all of their stores, or some combination of the above.
Joe's is seeking approval from the Court for a sale process that would seek bids to select a “stalking horse” suitor by March 20, 2009, with final bids due by March 27, 2009. The final sale transaction would occur by April 3, 2009. Joe's intends to pursue a two track sale process simultaneously by soliciting bids for a sale of as many stores as possible as a going concern and at the same time soliciting bids for conducting GOB sales.
Joe's listed both assets and debt of $100 million to $500 million. The top 30 unsecured creditors are owed a total of $12.8 million.
>>> The surprising turn of events here is the quick sale. The bankruptcy process usually provides the company some time to get the business in order to maximize value or turn things around. But the current credit markets are what they are right now and Wells Fargo obviously doesnt want this to drag on too long. They want their money now
>>> Heres a win-win. Save 1,600 jobs with very little effort. When the first “shovel-ready” project employs just 30 people and costs more than the money needed to fund this business, you have to wonder about the future. Perhaps we can take a little out of the budget targeted for studying pig manure in Iowa
