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Kona Grill Inc. has filed for bankruptcy, saying a stock buyback and the decision to double its number of restaurants just as customer traffic was starting to fall have hurt its liquidity, the WSJ Pro Bankruptcy reported. The Scottsdale, Ariz.-based company, which went public in 2005 and was delisted last week by Nasdaq, filed for chapter 11 protection on Tuesday in U.S. Bankruptcy Court in Wilmington, Del. The company said that it hopes to find a buyer for what has shrunk to a chain of about two dozen restaurants featuring sushi and American cuisine. Its $74 million in total debt includes $33.2 million owed to secured lenders KeyBank and Zions Bank. They are providing financing to help the business get through bankruptcy. Kona also owes $8 million to unsecured trade creditors.

Edward Lampert’s new Sears has lined up an $800 million loan from a group of lenders led by investment firm HPS Investment Partners to keep its remaining stores up and running, the Wall Street Journal reported. The three-year loan will be backed by some of the new Sears’s stores. The new loan will refinance an existing loan and also provide new money to fund working capital and capital to refurbish the chain. Sears Holdings Corp., which owned Sears and Kmart, filed for bankruptcy in October and closed hundreds of stores. In February, a bankruptcy judge approved a plan to sell its best-performing stores and other assets to a new company controlled by Lampert.

When Payless ShoeSource emerged from bankruptcy protection in August 2017, the national discount footwear company vowed to reinvent itself. But today the retailer and a hedge fund that controls it are locked in a contentious battle over its second turn through bankruptcy, USA Today reported. In February, just a year-and-a-half after its first chapter 11 reorganization case, Payless landed back in bankruptcy court — this time wiping a decades-old retailer off the map in the U.S. and Canada. The turn of events has destined an estimated 16,000 workers for unemployment and disappointed consumers who relied on the chain's 2,500 stores and website for affordable shoes, boots and sandals. The company intends to keep Payless' overseas operations running. Some of the chain's lenders and creditors claim the collapse may stem in part from self-inflicted causes. They cite the role of Alden Global Capital, a prominent hedge fund that is Payless’ majority shareholder as well as a major lender. Critics maintain Alden has invested in distressed companies and then in some cases installed unseasoned executives who cut costs and sold assets while failing to take steps needed for successful corporate turnarounds. Some Payless creditors and lenders also have raised questions about what they characterized as conflicts of interest between Alden and Payless. After hearing Alden-focused court arguments last Wednesday in St. Louis, Missouri, Chief Judge Kathy Surratt-States of the Eastern District of Missouri ordered anti-conflict-of-interest measures to ensure that Payless creditors and lenders receive equal treatment with the hedge fund. The provisions include the unusual appointment of a monitor to oversee the five-seat Payless board, three with Alden ties, including Heath Freeman, the hedge fund president.

ShopKo’s unsecured creditors are calling on a bankruptcy judge to convert the retailer’s case to chapter 7, in light of mounting legal fees, WSJ Pro Bankruptcy reported. The general merchandise and pharmacy chain may have a deficit of $42 million in payments to lawyers, advisers and creditors, who are owed full payment at the end of the case, lawyers for the unsecured creditors committee said in court papers. In early April, ShopKo’s largest creditor, McKesson Corp., asked the bankruptcy court to suspend or reduce mounting professional fees in the case. The pharmaceutical distributor argued that without such intervention, ShopKo would become “administratively insolvent,” meaning the estate would be unable to pay so-called administrative expenses. Unlike other creditor claims, the Bankruptcy Code requires administrative expenses to be paid in full. McKesson, which claims it’s owed millions of dollars for drugs delivered to ShopKo before the bankruptcy, contended that the company’s $480 million debtor-in-possession loan doesn’t give clear seniority to advisers’ fees in the case over other so-called administrative claims, such as those of landlords who are owed rent or suppliers who are owed money for goods they supplied. Specifically, McKesson’s lawyers argued that while ShopKo’s DIP loan provides for a “carve-out” for professional fees, those fees aren’t to be paid before the DIP lender, Wells Fargo & Co.

Just over a month ago, Modell’s Sporting Goods, the century-old New York area chain, found itself fighting for its life. A report in the Wall Street Journal that the chain, long a fixture in New York and Philadelphia’s athletic apparel retailing, hired BRG, a consulting firm known for its work for bankrupt companies, sent its suppliers running for the exits. In the weeks that followed, Mitchell Modell, chief executive and fourth-generation scion of the chain’s founding family, scrambled to pull off the nearly impossible: regaining the confidence of vendors once word gets out that a retailer has hired a restructuring firm. Within four days after the initial article in the Journal about Modell’s hiring BRG, daily shipments to Modell’s distribution center slowed to 7,000 from 18,000, according to Modell. Modell knew the only way to calm his suppliers and their financiers was to reach out to them directly. He and his merchandising chief, Charles Castaneda, held a full-court press for hundreds of vendors. “I gave my personal number to every CEO and president of my suppliers,” Modell said. Over the next six weeks, Modell waged an all-out campaign to win back suppliers and their financing sources. The effort, so far, has been a success. His strategy: “overcommunicate” with suppliers. Read more. (Subscription required.) 

One of the worst outcomes for a business owner is having a major customer file for bankruptcy and leave behind a large unpaid account receivable. ABI's Business Creditor’s Guide to Distressed Vendors, Debt Collection and Bankruptcy provides an insider’s look into the options available to help screen a business’s customers, plan for worst-case scenarios, and, if the situation does arrive, efficiently handle the fallout. 

Bed Bath & Beyond has built a business on coupons, but after years of stalled sales and declining profits, the New Jersey-based retailer is pulling back on coupons in a broad effort to turn around its business, the Washington Post reported. The housewares chain began mailing out 20 percent off “Big Blue” coupons nearly 30 years ago, at a time when sweeping discounts were a novelty. The idea was that the coupons would draw shoppers into the store, where they would then buy other items at full price. For many years, it worked. The company is mailing out fewer promotions and is choosier about how those offers can be used. Executives say that weaning customers off discounts will ultimately lead to higher profits. But analysts say the retailer faces an even bigger challenge: Getting customers into its stores, even without coupons. “Bed Bath & Beyond needs to create new reasons for the consumer to come in,” said Jonathan Matuszewski, an analyst for Jefferies. “And they need to do that before they yank the coupons.”

Monarch Alternative Capital LP, which recently bought 79 stores occupied by liquidating general merchandise retailer ShopKo, is now the leading candidate to buy the company’s optical chain at an auction that started yesterday, WSJ Pro Bankruptcy reported. Green Bay, Wis.-based ShopKo said over the weekend that the auction at the New York office of Kirkland & Ellis LLP begins with a proposed $8.5 million cash bid by Monarch, a $4.8 billion asset-investment firm mostly focused on buying the debt of distressed and bankrupt companies. ShopKo said that the sale of its optical business — its last major retail asset — to its main landlord could save as many as 700 jobs at about 80 locations. The company entered bankruptcy with about 14,000 employees. ShopKo said on Saturday that it is “excited to partner with Monarch to continue to serve” its optical customers. The auction process and final agreement is subject to the approval of the U.S. Bankruptcy Court in Omaha, Neb. Read more. 

Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.