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Hedge fund Cyrus Capital Partners has tried everything it can to stop Sears Holdings Corp. from selling some obscure internal notes to raise cash. Now the judge overseeing the bankruptcy is losing his patience and openly questioning why Cyrus, a major creditor, is standing in the way of a deal that could help salvage the retailer, Bloomberg reported. The dispute pits the hedge fund against Sears as it tries to line up more cash to get through the holiday season and craft a long-term survival plan. The note sale could buy some breathing room for Sears, which faces restive suppliers, landlords and other low-ranking creditors who say they’d be better off if Sears was dead. The hedge fund argued that Sears’s plan to sell up to $900 million of the notes, designed to benefit the company and by extension its lenders, would instead dilute recoveries for creditors. “Your client will have to come here and tell me why it thinks it’s going to be diluted,” Bankruptcy Judge Robert Drain told a lawyer for Cyrus at Thursday’s hearing. “I don’t want you to just lob something in and tell me sotto voce ‘and we’re participants in the CDS market,’ which I think may be the reason they’re objecting.”

Sears Holdings Corp. won court approval to pursue a sale of its best stores, a process that would be the retailer’s only hope of avoiding liquidation, WSJ Pro Bankruptcy reported. Bankruptcy Judge Robert Drain yesterday signed off on the company’s sale timeline to sell at least 400 of its best-performing stores. The company must find a so-called stalking horse, or lead bidder, by Dec. 15, which would set the floor price for other offers. If there is more than one qualifying bid for the stores, an auction would be held in mid-January. Sears has pegged its future to the sale of these stores since its Oct. 15 bankruptcy filing. Chairman Edward Lampert’s hedge fund, ESL Investments Inc., is expected to make a stalking-horse offer. Through ESL, Lampert is Sears’s largest shareholder and creditor, and his position in the company is being placed under the microscope. Before the bankruptcy filing, he was also chief executive. The company has appointed a special committee to investigate prior transactions between ESL and Sears. In addition, the committee of unsecured creditors has taken aim at ESL, and will be performing its own investigation. Judge Drain approved this secondary investigation yesterday as well.

The judge presiding over Sears Holdings Corp.’s bankruptcy chided a swap-betting hedge fund yesterday for interfering with the retailer’s effort to auction off loans owed between different Sears affiliates, WSJ Pro Bankruptcy reported. Sears has proposed selling $900 million in internal claims from one company unit against another, taking advantage of surging demand for the debt instruments from credit default swap traders. The sale proposal is being opposed by Cyrus Capital Partners LP, a Sears creditor that wrote insurance on Sears debt, betting the company would survive longer than it did. These internal debts would normally be extinguished in a bankruptcy. But they are suddenly a hot commodity among hedge funds that bought credit default swaps on Sears Roebuck Acceptance Corp. and now need cheap debts linked to that subsidiary to maximize returns. A bidding war for the intercompany notes could raise cash that Sears desperately needs to avoid liquidation.

Troubled wedding gown retailer David’s Bridal Inc is nearing terms for a debtor-in-possession (DIP) financing package with a group of first-lien term loan lenders ahead of the company potentially filing for chapter 11 bankruptcy protection as soon as next week, Reuters reported. The company is the latest retailer to struggle as internet upstarts offer increased transparency on prices, turning its stores into showrooms where customers try on gowns only to buy them online. More than 15 U.S. brick-and-mortar retailers filed for bankruptcy last year. The possible DIP package is expected to be valued between $50 and $60 million, but this may be increased as conversations with lenders are ongoing. First-lien bank debt holders, which include asset manager Oaktree Capital, own the majority of David’s Bridal’s term loan debt, and are expected to provide the DIP financing and take equity in the company. David’s Bridal is owned by private equity firm Clayton Dubilier & Rice. The firm, through a portfolio company called American Greetings Corporation that issued David’s securities, skipped an October 15 interest payment on its 7.75 percent unsecured bond due in 2020. The issuer’s 30-day grace period following the missed interest payment expired yesterday.

Wedding gown retailer David’s Bridal Inc. is expected to file for bankruptcy protection in the coming days, WSJ Pro Bankruptcy reported. The private equity-backed retailer is still in negotiations with its lenders as it wraps up a prepackaged bankruptcy deal that will see it survive. The negotiations are still fluid, and the timing of the bankruptcy filing could be pushed out. The Conshohocken, Pa.-based retailer aims to lighten its nearly $900 million debt load by handing over ownership to its creditors. Existing bondholders include Solace Capital Partners and Oaktree Capital Group.

Sears Holdings Corp. is finalizing a deal with financial firm Great American Capital Partners and other lenders for $350 million in critical bankruptcy financing that would keep the U.S. retailer open through the holidays, Reuters reported. The deal would increase an existing financing package from banks to give Sears a bankruptcy loan totaling $650 million. Bank lenders already promised $300 million when Sears filed for bankruptcy last month. The loan discussions come as the 125-year-old retailer has been facing calls to wind down its business from a key group of its creditors, including bondholders and landlords. The creditors believe they will collect more on what they are owed if Sears liquidates its assets, according to bankruptcy-court papers. The loan from Great American Capital Partners, an affiliate of liquidation specialist Great American Group and financial services firm B. Riley Financial Inc (RILY.O), and its partners would give Sears extra breathing room to seek buyers for its assets. Sears picked Great American’s proposal for a bankruptcy loan instead of an offer from hedge funds including Cyrus Capital Partners LP.

A judge signed off yesterday on a bankruptcy plan for Toys “R” Us that gives control of the brand to a group of hedge funds, and a fractional payment to suppliers, after a failed turnaround effort left 33,000 workers without jobs and all of its U.S. stores closed, WSJ Pro Bankruptcy reported. The once-giant toy seller filed for bankruptcy protection in September 2017, hoping to trim its chain of stores and survive. Hopes of a turnaround for the toy store chain were dashed when hedge funds owed about $1 billion pushed Toys into liquidation after a disastrous holiday season. The funds that controlled Toys “R” Us’s secured debt — Angelo, Gordon & Co., Franklin Mutual Advisers, Highland Capital Management, Oaktree Capital Management and Solus Alternative Asset Management — deny they are responsible for the failure of the turnaround effort. Market forces such as the boom in online sales have turned against bricks-and-mortar retailers, they contend.

Mall operators, eyeing defaults caused or made more likely by shuttered stores such as Sears Holdings Corp., are handing over their keys to lenders even before leases end, Bloomberg reported. That’s forcing loan-servicing companies to either take a shot at running the properties or sell them cheap. And if they’re unable to salvage the debt payments, investors in commercial mortgage-backed securities will take a hit. Last month, Washington Prime Group, a REIT, said that it gave up on two malls in Kansas whose loans had either defaulted or were headed for default, according to Deutsche Bank AG. And this month, Pennsylvania REIT announced it fled a mall in Wilkes Barre that had a loan headed for default, and it may abandon another in La Crosse, Wisconsin for the same reason. 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. 

Some bankrupt restaurant operators have blamed their woes on a trend toward fast-casual dining, and new research from the U.S. Agriculture Department backs them up, WSJ Pro Bankruptcy reported. The number of quick-service restaurants, where food is ordered and paid for at a counter, has grown nearly 20 percent nationwide from 2000 to 2015, according to the USDA’s Economic Research Service. By comparison, the number of full-service restaurants, where waiters take orders at tables and customers pay after eating, remained essentially unchanged for that time period, it said. Fast-casual eateries were the fastest-growing segment of quick-service restaurants for that 15-year span, the USDA found. Those restaurants, which include such brands as Chipotle Mexican Grill Inc. and Panera Bread Co., are sort of a hybrid of fast food and full service, it said. Fast-casual restaurants accounted for 2.9 percent of quick-service restaurants in 2000 and expanded to 10.8 percent by 2015, the department said.