Debtholders say Bon-Ton survival ‘at best, uncertain’

Bon-Ton
Bon-Ton will liquidate.

A group holding $223 million in Bon-Ton debt is objecting to portions of the department store company’s bankruptcy plan and wants to see an immediate orderly liquidation of the company’s inventory and other assets.

Bon-Ton
The Bon-Ton Stores Inc. headquarters in downtown Milwaukee.

The group also called any suggestion of ongoing or continuing restructuring discussions “both incorrect and misleading” and said Bon-Ton’s survival as an operating business is “at best, uncertain, and in reality, unlikely.”

The Milwaukee and York, Pennsylvania-based parent company of Boston Store and several other retail brands filed for chapter 11 bankruptcy Sunday. The company, which has not turned an annual profit since 2010, is proposing a restructuring plan that would convert most of its second lien notes into equity in a reorganized company, but that plan requires finding a third-party sponsor to invest new capital along with new money from second lien noteholders.

The group objecting to the plan holds about 63 percent of the second lien notes. It includes Alden Global, LLC; B. Riley FBR, Inc.; Bennett Management Corporation; Brigade Capital Management, LP; Riva Ridge Master Fund, Ltd.; and Wolverine Asset Management, LLC.

In a Tuesday court filing, the group says it has determined an immediate liquidation is needed “following repeated missteps” by Bon-Ton’s board and management “who proved themselves unwilling and/or unable to adapt to the fierce headwinds facing brick and mortar retailers.”

The group says it determined in the third quarter of last year that liquidation was needed and that if it was conducted during the holiday season it would generate proceeds that exceed Bon-Ton’s going concern value.

“That view was communicated to the debtors, but rather than pursue that strategy, the debtors instead doubled down,” the filing says. “Unfortunately, though not surprisingly, the debtors’ comparable stores sales for the holiday season decreased 2.9 percent compared to the prior year.

“Bon-Ton twice went through the process of trying to market itself to potential investors. The first started in mid-November. The company’s advisors contacted 38 potential parties with seven signing confidentiality agreements, but none would provide a non-binding indication of interest.”

After the group told the company they would consider converting their debt into equity, the company tried again but couldn’t find a potential partner.

The group says Bon-Ton is proposing to try again “rather than face reality” and would incur “mammoth overhead costs to continue operating.”

Bon-Ton is seeking court approval to pay $54.2 million in claims. The group is objecting to the payment of $18.5 million to “critical vendors,” another $19 million in prepetition taxes and nearly $9.1 million in various employee-related obligations.

Bon-Ton has 22,745 employees with nearly 20,000 of them being paid hourly and nearly 4,900 employees who earn a portion of their wages through commission.

Those commissions can range from 1 percent for fine jewelry, 2 percent for shoes, 3 to 6 percent for cosmetics, 3 to 20 percent for furniture and 10 to 48 percent for salon products.

The company said in court filings its monthly payroll liability is usually around $33 million.

When Bon-Ton filed for bankruptcy, the company reported having $1.74 billion in debts and $1.59 billion in assets as of Oct. 28. The company also reported millions in outstanding trade debts to suppliers.

The company’s creditors include Estee Lauder, which is owed $5 million; Hanesbrands, $3.6 million; Keurig Green Mountain Inc., $3.6 million; Michael Kors USA Inc., $2.8 million; Perry Ellis, $2.4 million; Ralph Lauren, $2.2 million; and the city of Milwaukee, which is owed $1.9 million.

In January 2017, city officials came up with a proposal to keep the Boston Store at the Shops of Grand Avenue and the Bon-Ton Stores Inc. corporate offices in downtown Milwaukee through 2028. The agreement included $1.9 million in city funds. Beginning Jan. 1, interest on the city’s Bon-Ton loan begins accruing. But the loan and interest payment is completely forgiven as long as Bon-Ton retains at least 750 full-time equivalent employees in the city. The annual payment will be partially forgiven on a sliding scale if Bon-Ton falls short.

Now that the company has filed for bankruptcy, the city attorney’s office is determining if the loan terms will be modified or if the city’s loan is unsecured, said Jeff Fleming, spokesman for the city’s Department of City Development.

“The Department of City Development’s focus is not merely on Bon-Ton entering bankruptcy but how the company emerges from bankruptcy,” Fleming said. “Meetings are taking place here regarding the appropriate next steps.  We are focused on keeping jobs here, protecting city taxpayers, and supporting a valued local business.”

See more from WISN-TV Channel 12, a media partner of BizTimes Milwaukee.

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