Liquidators are valuing merchandise at 47 Sport Chalet and eight Eastern Mountain Sports (EMS) stores being closed by bankrupt Vestis Retail Group LLC significantly higher than merchandise they are liquidating at 436 Sports Authority stores, bankruptcy court records show.
A joint venture formed by Hilco Merchant Resources and Gordon Brothers Group (Hilco/Gordon) is helping run going-out-of-business sales at all three chains under the supervision of federal bankruptcy courts.
Under a final order approved May 16 in Vestis Chapter 11 proceeding, Hilco/Gordon won’t get paid commission on the proceeds from going-out-of-business sales unless it recovers at least 120 percent of what Vestis paid for the merchandise at its Sport Chalet stores and at least 130 percent of what Vestis paid for the merchandise being liquidated at eight EMS stores. To earn the maximum commission of 1.25 percent of gross proceeds, the joint venture must gross at least 128 percent of Sport Chalet’s cost basis and 137 percent of EMS’s cost basis.
Those terms are substantially better than those approved at a May 16 bankruptcy auction of Sports Authority chain, where Hilco/Gordon and a third company secured the right to liquidate all 463 stores for 101 percent of the retailer’s merchandise cost basis.
Under a final motion approved by U.S. Bankruptcy Court Laurie Silverstein, Hilco/Gordon is permitted to sell their own like-merchandise at the Sport Chalet and EMS going-out-of-business sales, but must pay 5 percent of those proceeds – excluding sales taxes – to Vestis. Proceeds from those sales will not be available to Vestis’ unsecured creditors.
Unsecured creditors and lenders financing Vestis’ Chapter 11 restructuring will have an opportunity to challenge Hilco/Gordon’s ultimate fee for up to 20 days after the joint venture submits a report summarizing the results of the sales with the court.
Hilco/Gordon had been running Vestis’ going-out-of-business sales under a preliminary order pending final approval, which U.S. Bankruptcy Court Judge Laurie Silverstein granted Monday. Silverstein also approved a final revised motion that establishes the process Vestis will use to reject leases and other contracts.
On May 23, she is scheduled to consider a final order governing the bidding process for Vestis ongoing business as well as the company’s “Stalking-Horse Asset Purchase Agreement” with BSI Funding II LLC, an affiliate of Vestis’ parent company Versa Capital Management.
Versa created Vestis as a turnaround vehicle to acquire EMS in 2012 and combine it with Bob’s Stores. In August, 2014, Vestis acquired Sport Chalet.
To prevail in an upcoming bankruptcy court auction, investors will have to top the stalking-horse bid, which is valued at approximately $96 million including debts owed to Versa, by at least $2 million. Three quarters of that increment, or $1.5 million, would be paid to BSI Funding to defray expenses incurred preparing its bid.
If no qualified bids are received by 5 pm ET June 14, BSI Funding’s bid will win by default, enabling EMS and Bob’s Stores to exit bankruptcy as early as July.