Some senior lenders to Hudson's Bay Co. are seeking to terminate a controversial deal to sell off former Bay store leases to B.C. billionaire Weihong (Ruby) Liu.DARRYL DYCK/The Canadian Press
Hudson’s Bay Co. is headed back to court on Tuesday morning to fight a motion from some of its senior lenders, who are seeking to terminate a controversial deal to sell off former Bay store leases to B.C. billionaire Weihong (Ruby) Liu.
In a new court filing on Sunday, Hudson’s Bay called that termination request “premature.” The lease deal is “expected to generate significant recoveries” for the company’s creditors, according to an affidavit sworn by Hudson’s Bay chief operating officer and chief financial officer Michael Culhane.
The lenders are also seeking to expand the powers of a court monitor over Hudson’s Bay, accusing the failed retailer of mismanaging the wind-down of its business.
“The Board of Directors of Hudson’s Bay has acted appropriately and in the best interest of the company and its stakeholders, with a clear focus on maximizing recoveries from the estate,” Mr. Culhane’s affidavit stated, objecting to the request for a “super monitor.”
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After years of sales declines and facing mounting losses, earlier this year Hudson’s Bay failed to secure the additional financing it needed to keep the retail operations afloat. Weighed down by $1.1-billion in debt, the company filed for court protection from its creditors on March 7, under the Companies’ Creditors Arrangement Act (CCAA).
Since then, further attempts to secure the investment needed to keep even a handful of Bay stores open were unsuccessful. Canada’s oldest retailer closed all of its locations permanently on June 1.
The newest court document provides more detail on the scale of the job losses that resulted. Before the CCAA filing, Hudson’s Bay employed more than 9,300 people across Canada. By May 31, that number was reduced to 8,374, but after the stores closed, thousands of employees lost their jobs. As of last Friday, the 355-year-old retailer was reduced to a staff count of just 113 people.
As it seeks to pay back senior lenders, in addition to running liquidation sales at its stores, Hudson’s Bay sold off its intellectual property – including its brand names, logos and the stripe design best known from the company’s trademark blankets – to Canadian Tire Corp. Ltd. in a $30-million deal. The company also invited bidders to submit proposals to take over its store leases.
Hudson’s Bay received no offers for 62 of the locations, which are being handed back to landlords. In late May, the company announced a deal to assign up to 28 of the leases to Ms. Liu, the chairwoman of Nanaimo, B.C.-based real estate investment company Central Walk.
Ms. Liu received court approval last month to take over three of those leases, which are located in malls that Central Walk owns. But for the remaining 25 locations, the majority of landlords have opposed the deal, saying that Ms. Liu lacks any experience running a retailer and that she has not provided adequate information about her business plan. Ms. Liu has responded that she has a plan and believes landlords will support her if she receives court approval.
“Hudson’s Bay recognized and identified the potential difficulties or delays which could be faced given that Central Walk may not be viewed as an established retailer by the Landlords,” Mr. Culhane’s affidavit stated. He added that the court monitor and other senior lenders supported Hudson’s Bay pursuing the transaction, as did the creditors now objecting to the deal.
The syndicate of lenders who filed the motion last week to stop the lease deal and appoint the “super monitor” are represented by ReStore Capital LLC. That investment firm is a subsidiary of Hilco Global, which also owns the company that ran Hudson’s Bay liquidation sales.
Part of ReStore’s objection to the lease deal involves continuing costs Hudson’s Bay is shouldering – such as rent on the 25 stores and professional fees – which are diminishing the cash that could be used to repay creditors. An affidavit sworn by ReStore chief executive officer Ian Fredericks last week argued these costs were unnecessary, since the deal was unlikely to succeed in light of landlords’ opposition.
Mr. Culhane of Hudson’s Bay responded in his affidavit that the costs related to the deal are partially mitigated by the $6-million Ms. Liu paid for the three leases she has taken over following court approval. If successful, the transaction would be worth significantly more: The lease sale process required deposits of no less than 10 per cent of each bidder’s offer, suggesting Ms. Liu has bid up to $94-million for those 25 leases.
For the vast majority of the leases covered by the deal, Hudson’s Bay “did not have any alternative transactions with a higher prospect of completion,” Mr. Culhane’s affidavit states. It does note that the retailer has reached another lease-assignment agreement with an unnamed party and will seek court approval for that other deal on July 31.
ReStore has also accused Hudson’s Bay of incurring unnecessary costs by failing to manage its store clearances properly – for example, by paying for unnecessary signage removal – and adding to expenses by delaying the removal of store furniture, fixtures and equipment.
Mr. Culhane’s affidavit accuses ReStore of “seemingly intentional inaccuracies and mischaracterizations” in its court filing. For example, it overstated the cost of the signage removal, which is approximately $3.8-million, not $18-million as ReStore claimed, the affidavit stated. And the document says that as the lead liquidator running the sales, Hilco is to blame for delays removing the furniture and other items, leading to added costs estimated at $7.9-million.
On Tuesday, Hudson’s Bay will ask the court to dismiss the motion in its entirety.