Outside a Bon-Ton location.

Bankrupt Bon-Ton Stores Inc. is hoping for a “Hail Mary pass” to keep the company in business and 23,000 individuals employed.

The financially pressured retailer filed its Chapter 11 petition for bankruptcy court protection Sunday night in a Delaware bankruptcy court.

The document — filed by James H. Baird, partner at PJT Partners, Bon-Ton’s investment banker — revealed that the retailer began a marketing process in mid-November that included outreach to 38 potentially interested parties. Seven signed confidentiality agreements, but there were no formal indications of interest, even though some “indicated a desire for ongoing discussions as the restructuring process unfolded.”

The retailer also had been in discussions with second-lien noteholders, and what resulted was another reach-out on Jan. 10 to potential third-party sponsors for a new investor. Baird in the court document said 28 possible investors were contacted, with 15 signing confidentiality agreements.

“Currently, there are multiple parties active in the process, including a number of merchants and landlords who have expressed interest in participating in the transaction,” Baird said in the filing.

Concurrent with the sale process, the company has received bids from liquidators for its assets in case it needs to switch to liquidation mode should it be unable to find an investor.

What’s intriguing about Baird’s statement is the “number of merchants and landlords who have expressed interest” in participating in the transaction. Landlords typically limit their involvement in retail bankruptcies to their respective store leases. But with so many retail bankruptcies in 2017 and nearly 7,000 stores shuttered last year, it might make sense for them to think out of the box on how to salvage some retail store space.

While the landlords could be in talks about buying back some retail leases, there is the possibility they could participate in a consortium similar to the one in the Aéropostale bankruptcy that kept the teen retailer in operation as a going concern.

In the Aéropostale bankruptcy, Authentic Brands Group in 2016 led a consortium that included two landlords and others who won the auction for the teen retailer, which ultimately kept more than 300 stores in operation and saved more than 5,000 jobs. In that deal, ABG took control and ownership of the intellectual property assets, while Simon Property Group and General Growth Properties partnered with ABG to operate the stores and Gordon Brothers Group and Hilco Merchant Resources took over the disposal of assets and locations that ABG didn’t want to keep.

It’s too early to tell what will be the end result for Bon-Ton. The current court proposal calls for March 19 to be the deadline for a stalking-horse designation bid, with April 2 the bid deadline and April 9 slated for the auction date.

And there is a possibility Bon-Ton would have a fighting chance, even though a business plan submitted to certain second-lien noteholders — and disclosed in a regulatory filing, a Form 8-K, with the Securities and Exchange Commission last week — seemed ambitious.

That turnaround plan is focused on store portfolio, merchandising, planning and allocation, marketing and capital investment. Bon-Ton’s projection forecasts an earnings before interest, taxes, depreciation and amortization margin of 3.9 percent, or $100 million, on revenues of $2.56 billion. Revenues include projected sales of $2.48 billion and a 4.9 percent comparable-store sales decline. Under the proposed turnaround plan, the retailer is forecasting 5.1 percent EBITDA margin, or $123 million, in 2018. That’s based on total revenue of $2.39 billion that includes $2.32 billion in sales and 2.3 percent comp growth. For 2019, the forecast is an EBITDA margin of 6.5 percent, or $164 million, on total revenues of $2.54 billion that include sales of $2.46 billion and a 4.3 percent comp gain.

According to Baird, the company conducted a test that included an investment of $1.5 million across 10 stores to increase assortment, improve merchandise presentation and enhance customer experience. The results over a four-week period were “encouraging,” he said. Baird noted that there was a “same-store sales improvement of approximately 8 percentage points relative to comparable-store sales of the debtors’ regular fleet of stores (beginning Oct. 29, 2017), suggesting that the [plan] could provide the debtors with a blueprint to significantly improve store operations and maximize value.”

But the ambitious plan contained one huge hurdle — the retailer still needs a capital structure in place that would allow it to execute on the initiatives. It was a point that didn’t go unnoticed by the company’s debt holders.

Michael Culhane, executive vice president and chief financial officer, in a separate court filing, said a critical must for Bon-Ton to move ahead on the plan is finding a new investor to give it the financial lifeline it needs.

Last month when Bon-Ton held discussions with some of its debt holders, Culhane said they were willing to convert a substantial portion of their notes into equity, with the balance into new second-lien notes. Culhane said in the court filing that the catch was that while they “indicated a willingness to invest new money in the reorganized business,” it was on the condition that Bon-Ton find an investor who would “assume majority ownership” of the reorganized company.

William Danner, president of CreditRiskMonitor, a financial risk analysis firm, said the outlook is fairly “tough,” given the challenges ahead for Bon-Ton.

“Given the challenges, I would give them less than an even chance that they could make it as an [reorganized] company, even with independent investment,” Danner said. He added that management has a very difficult high-wire act, noting they first need to get enough financing to avoid a liquidation, and then even if they get that accomplished, need to execute to avoid the bankruptcy parlance of a Chapter 22, when retailers who exit a Chapter 11 head back in for a second tour of bankruptcy proceedings.

One bright note that could help Bon-Ton is the expectation that retailers could see a better 2018, although that leaves a big question mark on what 2019 could bring, Danner said.

In the bankruptcy petition filed on Sunday, the company listed assets at $1.59 billion and liabilities at $1.74 billion as of Oct. 28. In addition to leasing 227 stores, the regional department store operator owns 22 stores, as well as the ground leases on seven sites.

Among its top 10 unsecured creditors are: Estée Lauder, Pittsburgh, $5.1 million; HanesBrands, Chicago, $3.6 million; Michael Kors USA Inc., Dallas, $2.8 million; Perry Ellis, Atlanta, $2.4 million; Ralph Lauren, Dallas, $2.2 million; Nine West, Atlanta, $2.1 million and Under Armour, Baltimore, $1.6 million. Other top brands among its top 20 unsecured creditors are: Marc Fisher, Greenwich, Conn., $1.4 million; Elizabeth Arden, Boston, $1.1 million; G-III Leather Fashion Inc., New York, $1 million; Levi Strauss, Atlanta, $964,718, and Skechers USA Inc., Chicago, $910,131.

The first store in the Bon-Ton family — Carson’s — was founded in 1854. Younkers was founded in 1856, and Elder-Beerman was founded in 1883. Bergner’s was founded in 1889, and Boston Store was founded in 1897. The Bon-Ton nameplate was founded in 1898, followed by Herberger’s in 1927. That collection, some through acquisition, gives Bon-Ton the distinction of having a storied history in which the oldest nameplate was founded before the Civil War and the youngest shortly before the Great Depression.

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