Homebound shoppers may put going-out-of-business sales out of business for a while, Bloomberg News reported. Creditors are facing lower potential recovery values from bankrupt chains like Pier 1 Imports Inc. and Modell’s Sporting Goods Inc., where liquidation sales are underway. More failed chains also risk running out of money during the court process and shifting from a reorganization to a full liquidation of the business. Coronavirus restrictions and self-isolation have hit when many retailers are in bankruptcy or on the brink of it. Proceeds from store closings are among the most important assets bankrupt companies use to pay back their creditors, but all bets are off when consumers are staying at home. “Your lenders are not going to get out of it what they thought they were going to get out of it,” said Joseph Malfitano, founder of New York-based turnaround advisory firm Malfitano Partners. “Nobody has coronavirus built into an appraisal.” The fallout from consumers staying at home will affect companies and their lenders both in and out of bankruptcy. Asset-based loans that use inventory as collateral are an important means of financing for retailers. “If they’re not able to liquidate off the shelves, creditors are going to suffer,” said Eric Horn, a restructuring attorney at A.Y. Strauss. Creditors may demand higher rates or become reluctant to lend at all. “I don’t see any ABL lenders making new retail loans at this point,” Horn said. “I think that’s going to stagnate for a while. You have no choice but to work with your current borrowers.”
