The Athlete’s Foot Files Chap. 11; Will Liquidate Corporate Stores

As Sports Executive Weekly speculated earlier this week, The Athlete’s Foot on Thursday filed for Chapter 11 bankruptcy protection, listing assets of $33.6 million and liabilities of $39.4 million. The company will immediately liquidate its 124 corporate stores.

The bankruptcy action was taken by The Athlete’s Foot Stores, LLC, which owns and operates the TAF corporate stores. The Athlete’s Foot Brands, Inc., which has common ownership and management of the LLC, owns the brand trademark and manages marketing, franchise support, and the monitoring of franchise store activities. The Athlete’s Foot Brands, Inc. is not included in the bankruptcy and franchise stores are not affected by the action.

TAF in October had secured a $20 million secured revolving credit facility from GMAC Commercial Finance LLC. The bankruptcy documents reveal that as of November 23, 2004, TAF’s obligations owed under the GMAC loan exceeded the loan formula, triggering an over-advance. Without cash liquidity TAF was unable to repay GMAC. At the same time, vendors pulled the plug on deliveries, leaving TAF with few fresh goods for the holiday selling season.

On or about November 30, 2004, GMAC notified TAF that it was terminating its commitment to make advances under the credit facility. GMAC at the same time agreed to forebear from exercising its rights and remedies until December 3, a date which was later extended, in exchange for TAF’s strict adherence to certain action steps, among which included providing GMAC with a proposed debtor-in-possession budget.

The Athlete’s Foot reported a loss of $21 million on revenue of $172 million in its last fiscal year.

GMAC is listed as the only secured creditor with a $14.0 million claim. The claim is valued at “substantially all” of TAF’s assets.

The filing also indicates that TAF and GMAC have agreed to terms for DIP financing.

The filing indicates that TAF has developed a preliminary business plan which calls for them to “initially engage in the orderly liquidation of their entire inventory position.” At the same time, the retailer will look for a buyer for all furnishings, fixtures and leaseholds. Any unsold leases will be rejected in the BK.

New Balance is listed as the largest unsecured creditor with roughly $1.43 million in claims and K-Swiss is right behind them with approximately $1.36 million. Nike is owed nothing in the filing since they had TAF on pay-in-advance terms.