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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.”

Brooklyn-based ice-cream maker Ample Hills Creamery filed for chapter 11 in the U.S. Bankruptcy Court of the Eastern District of New York, The Real Deal reported. Chapter 11 would give the company a chance to pare down its debt and reorganize its operations. The popular ice cream parlor has 14 locations in the New York City area: six in Brooklyn, four in Manhattan, three in Queens and one in Jersey City. Its two locations in Florida are in Miami and Orlando. The company had a branch in Los Angeles but announced in late January that it would close its Los Feliz location. Ample Hills filed for bankruptcy under two entities. Ample Hills Holding has between $1 million and $10 million in assets and between $10 and $50 million in liabilities, while Ample Hills Creamery has between $0 and $50,000 in assets and between $100,001 and $500,000 in liabilities, according to the filings. An affidavit filed with the bankruptcy says the company owes about $1.5 million to creditors and landlords.

A bankruptcy trust for creditors who lost money in the Toys “R” Us Inc. bankruptcy sued former Chief Executive David Brandon and several directors tied to owners Bain Capital LP, KKR & Co. and Vornado Realty Trust, alleging that they siphoned money out of the company before it went under, the Wall Street Journal reported. The lawsuit also accused Brandon and other Toys “R” Us executives and board members of conspiring to keep the company’s suppliers in the dark about its dire financial straits in the months before it collapsed. As a result, suppliers and other creditors lost $800 million, according to the complaint. Toys “R” Us filed for bankruptcy in September 2017 and liquidated in March 2018, leaving behind a pile of unpaid bills, mostly to vendors. Bob Bodian, an attorney who represents the Toys “R” Us executives and directors, said they “acted in the best interest of the company and its stakeholders.” The lawsuit is a “misguided effort to pressure insurance carriers to pay meritless claims,” he said. When Toys “R” Us filed for bankruptcy in 2017, the company touted its access to $3.1 billion in bankruptcy loans but quickly defaulted on the loan, leaving many suppliers and other creditors with $800 million in unpaid bills, the largest amount ever in a chapter 11 case, according to the lawsuit.

Consumers might want to stock up now on clothing and other supplies for the back-to-school season because retailers are preparing orders for August as manufacturers in China cope with coronavirus shutdowns and delays, Bloomberg News reported. And there might not be enough goods to go around. “Everybody will want to be back shopping, and that’s when the real inventory shortage will hit,” said Richard Maicki, a managing director at consulting firm Berkeley Research Group, who advises retail and consumer companies on turnaround plans. Factories are coming back online in China, said Stephen Lamar, chief executive officer of the American Apparel & Footwear Association, a nonprofit organization for retailers and suppliers. The trouble lies in the lag created by their downtime. The National Retail Federation on Monday said the virus may have a longer and larger impact on imports at major U.S. retail container ports than previously believed. Retailers and manufacturers have worked to diversify where they make their goods in recent years, a process accelerated last year by U.S. tariff increases on Chinese goods. But many components like buttons and fuses are still primarily made in China. It takes anywhere from two to six months to shift to another supplier, and many factories elsewhere “are not geared up to take the kind of potential capacity shift” needed, said Holly Etlin, a managing director at AlixPartners who works to turn around retailers and other troubled companies. She spoke on Tuesday on a webinar panel hosted by the American Bankruptcy Institute about the effect of the virus on supply chains. Read more.

Miss the special abiLIVE webinar lookin at supply chain disruption and other financial effects of the coronavirus? Watch a replay here. 

What will the likely impact of the coronavirus COVID-19 be on the bankruptcy world? Read eight predictions in a special analysis from Stinson LLP's Thomas J. Salerno and Avion Holdings' G. Neil Elsey. Read it here.

Modell’s Sporting Goods Inc. filed for bankruptcy on Wednesday and said it plans to shutter all its stores, a stark outcome even considering the challenges facing today’s bricks-and-mortar retailers, WSJ Pro Bankruptcy reported. The chapter 11 filing in the U.S. Bankruptcy Court in Newark, N.J., comes despite an unusually public campaign by Mitchell Modell, the company’s chief executive and the fourth-generation scion of its founding family, to enlist the support of vendors and landlords in a turnaround. In television interviews, he talked openly about discussions with landlords and possible buyers that are typically kept secret. Modell said yesterday he believed that a liquidation “provides the greatest recovery for our creditors.” “This is certainly not the outcome I wanted,” he said. Modell’s said it would continue discussions with financial creditors about a potential recapitalization of the business through asset sales or an equity investment. The company has 153 stores located mainly in the Northeast.

GameStop Corp. is facing a renewed threat from a group of shareholders upset with the videogame retailer’s performance, the Wall Street Journal reported. A group including Hestia Capital Partners LP and Permit Capital Enterprise Fund LP sent a letter to the Grapevine, Texas, company’s board, urging it to appoint a stockholder representative as a director. The investors collectively own about 7.5 percent of GameStop’s shares, up from roughly 1.3 percent at this point last year. At that time, the group called for the company to refresh its board and boost stock buybacks, and threatened a proxy fight if they were rebuffed. GameStop went on to name a new chief executive and Hestia and Permit entered a cooperation agreement with the company in April. As part of the agreement, the company said that it would appoint an independent director from among candidates nominated by the investor group. In return, the group agreed to refrain from publicly expressing concerns with the company until Thursday. In that period, the shares have lost more than half of their value as sales and revenue have fallen. GameStop shareholders have lost 85 percent of their investment in the past five years, the group wrote.

After two decades of false starts and setbacks, the grand opening of the American Dream mega-mall’s hundreds of retail stores, restaurants and DreamWorks water park is set to take place March 19. But the ribbon cutting comes as the deadly coronavirus spreads through the U.S., causing New Jersey’s first fatality, and a growing number of Americans are avoiding crowded spaces, Bloomberg News reported. The outbreak is the latest hurdle for the $5 billion complex next to MetLife Stadium in East Rutherford, N.J. These have included developers pulling out, a partially collapsed roof, funding shortfalls, delayed opening dates and the loss of two high-profile tenants to bankruptcy months before it was slated to debut. On Tuesday, New Jersey announced its first death from coronavirus — in the same county where the mall is located. Across the Hudson River in New Rochelle, New York, the National Guard is being sent to close large public gathering spaces in an effort to slow the spread of the outbreak. And the Centers for Disease Control and Prevention is warning at-risk populations to avoid crowds. Still, American Dream is moving forward with its plan to open the water park and retail portion. “It’s just bad timing,” Gabriella Santaniello, founder of retail consulting firm A Line Partners, said. “They are really in a predicament. There are just things beyond their control.”

The operator of Art Van Furniture, PureSleep and a few other furniture and mattress store brands has filed for bankruptcy to close most of its locations, WSJ Pro Bankruptcy reported. The Michigan-based company said yesterday that it planned to complete going-out-of-business sales at most of its 169 retail stores within the next six to eight weeks after filing for chapter 11 protection in the U.S. Bankruptcy Court in Wilmington, Del. Retail stores operating under Art Van’s Levin Furniture, Levin Mattress and Wolf Furniture brands will be spared under the company’s plans, however. Robert Levin, the former owner of Levin Furniture, has agreed to purchase out of bankruptcy 44 retail stores operating under the banners and two related distribution centers, according to court papers. The proposed sale of the Levin Furniture and Wolf Furniture stores must be approved by a bankruptcy judge. The transaction would save about 1,000 jobs, Art Van Chief Finance Officer David Ladd said in a declaration filed in bankruptcy court. Art Van said it has worked out a budget with its senior lenders to fund its operations while completing the proposed sale and closure of the remaining business. The wind down Art Van has proposed will maximize value and recoveries for creditors, Ladd said.

Bluestem Brands Inc., which for decades has been selling everything from apparel to appliances through its Fingerhut catalogs, filed for bankruptcy yesterday with a deal to sell its business to Cerberus Capital Management’s lending arm, the Wall Street Journal reported. The Eden Prairie, Minn.-based retailer said that it filed with a proposed deal to sell its various businesses and brands to an investment vehicle backed by lenders led by Cerberus Business Finance, which is also providing a $125 million bankruptcy loan. The transaction is subject to higher and better offers, and the company has hired investment bank Raymond James Financial Inc. to conduct a sale process. Bluestem in its court filing blamed its financial problems on many of the challenges brought on by increased competition from retailers like Walmart Inc. and Amazon.com Inc. The company has also had to deal with some $460 million in debt, a burden that proved to be an unsustainable drain on liquidity, according to Thomas L. Fairfield, a Bluestem director.