The possibility of The Bon-Ton Stores Inc. emerging from bankruptcy as an operating business took a major hit Wednesday as a bankruptcy judge denied a request from the company to pay some of the fees for the lone bidder interested in buying the business as a going concern. The ruling by the judge makes it more likely that the company is headed for liquidation.
An investor group that included two mall owners, a private equity group and a Bon-Ton vendor signed a letter of intent on Friday outlining the terms of a deal that would have kept the current management team in place and the business operating. The deal, however, included a number of contingencies and required Bon-Ton to seek court approval for the company to pay a $500,000 work fee as the parties sought to finalize a purchase agreement.
U.S. Bankruptcy Judge Mary Walrath said Wednesday she would not approve the payment, noting Bon-Ton was not paying the fees of any other bidders and that the offer from the investor group did not amount to a qualified bid at this point.
“We already do have actual bids, actual qualified bids,” Walrath said.
Consultants for Bon-Ton testified the company had received three other bids that all contemplate liquidating the company’s assets, along with five other bids for portions of the company. The investor group, which included Namdar Realty Group, Washington Prime Group, DW Partners and AM Retail, was the only offer that would have kept the business in operations.
Walrath said in other cases where similar fees were paid all of the bidders received money or the fee was used to encourage an initial baseline bid to get others interested.
“In this case there are already other bidders who’s nominal bids appear to be higher than this letter of intent,” she said.
The investor group offered $128 million in cash along with the assumption of some of Bon-Ton’s debt. A group of second lien noteholders, who also bid on Bon-Ton’s assets, objected to the payment of the work fee. The noteholders offer included cash to pay down certain debt along with $60 million to wind down the business and $100 million credit.
“The only real and timely bids generated from the debtor’s lengthy marketing process call for the liquidation of the assets as the path to maximize value,” the noteholders, who hold about $250 million in Bon-Ton bonds, wrote in their objection.
Attorneys for Bon-Ton argued spending the $500,000 was a worthwhile business expense that would potentially allow the company to continue to employ nearly 23,000 people.
Last week, Bon-Ton filed notices with regulators around the country regarding potential layoffs if it could not find a going concern buyer. For Wisconsin, those notices included 2,255 employees and the closure of stores in Brookfield, Eau Claire, Glendale, Greendale, Janesville, Madison, Marshfield, Milwaukee, Racine and Wauwatosa along with corporate offices in Milwaukee.
But attorneys for the noteholders argued that the letter of intent from the investor group didn’t make clear how many stores or employees would be kept on.
“There’s plenty of interest in the assets,” a noteholder attorney said. “It’s just not interest of the kind the debtors and their management team want.”
The letter of intent gives the investor group and Bon-Ton until Sunday to reach a definitive agreement.
“We remain in active discussions with DW Partners and other members of the investor group to complete an asset purchase agreement as we proceed toward the court-supervised auction scheduled to be held on April 16,” said Bon-Ton spokeswoman Christine Hojnacki.