The North Carolina-based department store chain, which had declared assets and liabilities both in the $1 billion to $10 billion range, had said earlier this month that it planned to execute a so-called pre-packaged bankruptcy, which generally involves working on a pre-negotiated plan, and with creditors in agreement.
Belk’s plan involved a restructuring support agreement that would essentially cut $450 million in debt and provide $225 million to fund the business. Under the plan, private equity firm Sycamore Partners will still continue to hold a majority interest in the company going forward, according to court filings. The plan would also preserve the retailer’s 291 stores and the jobs of 17,000 employees, more than half of whom are part-time workers, the company said.
The retailer had previously laid off some retail and corporate staff in June after it reopened from temporary store closures during pandemic-related lockdowns that went into place in March.
In a declaration filed in the case, Belk’s chief financial officer William Langley wrote that lockdown and social distancing measures during the pandemic and “radically altered behavior by consumers” posed challenges for stores that needed foot-traffic.
“Belk, along with many other retail companies, has faced a challenging commercial environment in recent years brought on by increased competition among retailers and an ongoing shift away from in-store shopping,” he wrote in the declaration.
“Given Belk’s sizable store portfolio — with approximately 291 stores across 16 states — and its associated operating expenses, Belk has relied heavily on physical consumer traffic, and resulting sales conversion, to meet sales and profitability goals,” he wrote. “Amid these macroeconomic headwinds, Belk has taken proactive measures to remain competitive, including expanding its e-commerce platform, closing underperforming stores and streamlining its workforce.”
The dramatically altered retail landscape during the pandemic only exacerbated those challenges, he wrote.
“Demand for discretionary retail products has plummeted during the COVID-19 pandemic as consumers prioritize — with good reason — their health and maintaining a source of income,” Langley’s declaration said. “In this environment, most discretionary retail products are an unnecessary luxury for many consumers. Additionally, online sales are not as profitable as store sales due to the cost of shipping.”
The company had begun soliciting votes on its plan in late January, at a time when it had roughly $1.9 billion in funded debt, according to the court filings.
Pre-packaged restructurings can be executed quickly, bypassing the traditional rigors of a Chapter 11 process in which a bankruptcy court and various creditor constituencies scrutinize a bankrupt entity’s finances, and navigate disputes over claims, potential objections to plans, and often, settlement discussions. General unsecured creditors usually form an official committee in many of the more typical corporate bankruptcy proceedings.
In this case, the restructuring plan would pay permitted general unsecured claims “in full … or reinstate such claims,” according to the filings.
The vast majority of the company’s staff are hourly workers, while some 2,100 employees are salaried, according to the filings.