A sign outside the downtown Hudson's Bay store in Vancouver on March 24. The retailer was back in Toronto court on Wednesday for the latest on its liquidation process.DARRYL DYCK/The Canadian Press
Hudson’s Bay Co. was in court again on Wednesday, seeking approval for an agreement with its senior lenders that would place a time limit on saving six stores that have been left out of liquidation for now.
The agreement would mean that those six locations would also begin liquidation unless the Bay can show by April 7 that it has the prospect of reaching a deal – such as by selling part of the business – that would then repay the senior lenders. Landlords for Hudson’s Bay have opposed the agreement.
The lenders – Bank of America N.A., Pathlight Capital LP and Restore Capital LLC – told Hudson’s Bay that they would seek a court order to put the company in receivership without such an agreement providing “appropriate guardrails” as the retailer seeks to restructure, Ashley Taylor, a lawyer with Stikeman Elliott LLP representing HBC, told the court on Wednesday.
“To be honest, it was not a very satisfying outcome for the company,” Mr. Taylor said, acknowledging that two weeks is not much time to determine whether the stores have a future.
“The company wanted more stores, the company wanted more time and latitude to find a solution. But that was the best we could negotiate at the time.”
Hudson’s Bay first received court protection from its creditors on March 7, under the Companies’ Creditors Arrangement Act. Since then, many customers have visited the stores to buy up Bay memorabilia or to look for deals, even before liquidation sales began on Monday.
The surge in sales outpaced the company’s expectations, allowing Hudson’s Bay to repay initial financing it received to keep the operations afloat, and eliminating the need to take on further emergency debt as it had planned.
Last Friday, Hudson’s Bay received court approval to repay that initial loan, and to commence liquidation sales at all but six of its locations across Canada. For now, the plan excludes three stores in the greater Montreal area and three stores in Toronto – one of which also includes a Saks Fifth Avenue location that Hudson’s Bay operates under licence with Saks Global – from the clearance sales.
The restructuring agreement was submitted only very shortly before last Friday’s hearing, and the court delayed discussion of that agreement until this week.
The remaining 74 Hudson’s Bay stores, as well as two Saks Fifth Avenue and 13 Saks Off Fifth stores, commenced liquidation on Monday. However, it has taken time to apply discounts to many of the products in the stores. On Monday evening at the Bay location in Toronto’s Fairview Mall, customers were lined up at a service desk asking for price checks on multiple items, only to walk away without purchasing goods that were not yet marked down.
In addition to approving the liquidations, on Friday the court also authorized Hudson’s Bay to begin seeking buyers for all or part of the business, and to seek to monetize its store leases. Those processes are set to conclude in late April and early May, respectively.
Further proceeds from any sale of part of the business, lease monetization or other gains would go toward paying off lenders according to a priority list. As of March 7, Hudson’s Bay had $430-million outstanding under three credit facilities, as well as $724.4-million in mortgage debt for a total of $1.1-billion in outstanding secured debt obligations.
April 7 is not a strict deadline to find a solution for the other six locations, Mr. Taylor explained. The company could keep them out of liquidation if the monitor overseeing the CCAA process and the financial adviser overseeing the sale process indicate that they believe one or more stores will be subject to qualified bids.
The agreement also allows Hudson’s Bay to take more stores out of liquidation, if the retailer conforms to a budget set out in the deal, and if Hudson’s Bay and its advisers believe it would lead to a bid for the business.
“Is it perfect? No, it’s not perfect,” Mr. Taylor said, adding that the agreement would allow the retailer to move forward without “fighting” with its lenders.
The deal was necessary in part because while Hudson’s Bay tries to develop a restructuring plan, it is spending cash keeping stores open and using store inventory over which the lenders have a security interest. The lenders argued in court documents that the agreement provides them some protection in exchange for use of that collateral.
However, a lawyer for RioCan Real Estate Investment Trust opposed the agreement, saying that CCAA processes often allow for the use of such collateral, and that the agreement would limit the company’s ability to find a way forward that would benefit all parties concerned, and not just the senior lenders.
RioCan is both a landlord to Hudson’s Bay and also co-owns some of the retailer’s real estate assets through a joint venture.
“These are in fact snatching the steering wheel from the company and driving it towards the liquidation result that RioCan and others are submitting should be avoided at any cost,” Joseph Pasquariello, a lawyer with Goodmans LLP representing RioCan, said during Wednesday’s hearing.
The proceedings were disrupted when a participant in the Zoom meeting for the hearing broadcast sexually explicit videos on the call, which were also shown in the courtroom. A subsequent attempt to set up a webinar that controlled access to the hearing suffered audio issues, and the hearing was adjourned. The court will resume consideration of the matter on Thursday morning.