%1
Toys `R' Us Workers Go to Congress to Seek Curbs on Buyout Firms
Fired Toys “R” Us Inc. workers took their travails to Congress yesterday to press for changes in the way private equity deals are structured, Bloomberg News reported. Potential U.S. presidential candidates Kirsten Gillibrand and Cory Booker, and Minority Leader Chuck Schumer were among Democratic senators who met yesterday with former staff members and workers’ rights groups. The ex-employees are asking for new leverage limits on private equity deals, along with a worker-protection tax and profit clawbacks that would fund payments in situations similar to the one now playing out with the demise of the private equity-owned U.S. toymaker. In a joint meeting with Sens. Booker and Bob Menendez, several workers, wearing blue and purple Toys ‘R’ Us or Babies ‘R’ Us shirts, asked the legislators to take action to prevent similar scenarios. Besides broader industry legislation, they asked that lawmakers urge creditors and the buyout firms to contribute to a hardship fund for the laid-off Toys workers. Menendez said that he and Senator Booker are considering specific policy proposals and may offer an amendment to the fiscal 2019 appropriations bill set for a vote in the coming days.
San Francisco Department-Store Icon Gump’s Seeks Lifeline
Gump’s Holdings LLC, owner of Bay Area retail landmark Gump’s, is looking for a lifeline in negotiations with its main lender, Sterling National Bank, such as more time to find additional financing or a buyer, Bloomberg News reported. Gump’s announced in May that it had hired an adviser to seek financing or other alternatives for the company, which dates back to 1861. An influx of wealthy gold prospectors helped shape the retailer’s evolution into a luxury seller of items like imported Chinese and Japanese porcelains, silks and jade. Besides its store in San Francisco’s Union Square shopping district, the company has a direct-to-consumer division, which includes a website and catalog, that makes up 75 percent of its revenue.
Brookstone Plans to Shut Most Stores in Bankruptcy Filing
Brookstone Inc., whose quirky products are a staple of airport shopping, is preparing to close most of its stores as part of a bankruptcy filing, Bloomberg News reported. A filing could come as soon as this month, though the company is still evaluating its stores and may opt to keep locations open in airports. “We are currently seeking ways to revitalize our retail business,” the company said in a statement. Brookstone has 140 stores in the U.S., including 36 in airports, according to its website. The site lists five locations in Atlanta’s airport alone. This would be Brookstone’s second trip to bankruptcy court since 2014, when the Merrimack, N.H.-based company filed a chapter 11 petition with a deal to sell its assets to Spencer Spirit Holdings Inc. for about $146.3 million. A group of Chinese buyers backed by retailing conglomerate Sanpower Group and Hong Kong-based private-equity firm Sailing Capital subsequently outbid Spencer with a deal valued at about $174 million.
Mattel Cuts 22 Percent of Corporate Jobs as Sales Plunge Post-Toys ‘R’ Us Bankruptcy
Mattel’s turnaround is no kids’ game, Fortune reported. The toymaker behind Barbie and Fisher-Price said on Wednesday it would cut 2,200 jobs, or 22 percent of its non-manufacturing workforce, as it grapples with protecting its profit amid a deep sales slide in the wake of the Toys "R" Us bankruptcy. The job eliminations are part of a $650 million cost-cutting program that also saw it recently close its New York office. The news sent Mattel shares down 7 percent in after-hours trading. Mattel’s sales fell for a fourth straight quarter, continuing the toll losing its biggest customer has taken on Mattel, as well as rivals such as Hasbro. Losing a client as big as Toys "R" Us will be painful for toymakers for some time. Earlier this week, Hasbro reported a smaller than expected sales drop, suggesting to Wall Street it is making progress in lining up new retailers to sell to. Mattel’s second-quarter sales plummeted 14 percent to $841 million, below Wall Street projections. Two bright spots in its quarterly report were strong sales for Barbie and Hot Wheels, its two biggest brands. The company’s adjusted loss was 56 cents a share, far worse than the 31 cent loss analysts expected. Ynon Kreiz, Mattel’s CEO, urged investors to be patient, saying in statement that “we are in a turnaround.” He wants Mattel to focus less on manufacturing its own toys, and more on developing its own intellectual property. “Our goal is to transform Mattel into an IP-driven, high performing toy company,” he said. For now though, he’ll have to figure out his post Toys "R" Us world.
Corporate Bankruptcies Up Amid Retail Woes, Consumer Filings Fall
Consumers are filing fewer bankruptcies in a stronger economy, but chapter 11 filings by corporations are up, possibly a reflection of retail sector weakness, Bloomberg BNA reported. Unfolding U.S. trade uncertainty and its potential impact on bankruptcies might also be something to watch going forward, a law school professor and former bankruptcy judge suggested to Bloomberg Law. Bankruptcy filings overall fell 2.6 percent to 775,578 for the year ending June 30, compared to the same period a year ago, the Administrative Office of the U.S. Courts reported July 24. Non-business filings, which comprise most of the activity and capture consumer bankruptcy, fell 2.5 percent to 753,333, while business filings fell 5 percent to 22,245. Business filings include those for chapter 11, which rose 2 percent to 7,141. “The drop in consumer filings likely follows strong job reports; people don’t file as fast if there is money coming in,” <b<Bruce A. Markell</b>, a professor of bankruptcy law at Northwestern Pritzker School of Law in Chicago, told Bloomberg Law. “The rise in chapter 11 filings, however, may indicate some weakness in various sectors, most prominently retail.” Looking ahead, Prof. Markell suggested that uncertainty stemming from possible trade wars and its effect on future filings will be “something to watch.” The figures present filing numbers for cases filed under chapters 7, 11, 12 and 13. Here’s how the latest filings break down: Chapter 7 filings totaled 479,151, down from 489,011 in 2017; chapter 11 filings totaled 7,141, up from 6,999 in 2017; chapter 12 filings totaled 475, down from 482 in 2017; and chapter 13 filings totaled 288,741, down from 299,398 in 2017.
Gibson Fends Off Criticism of Sale Process
Gibson Brands Inc. pushed back at criticism of a plan to hand ownership to a bondholder group led by KKR & Co., with the bankrupt guitar maker saying none of the 58 other parties it has contacted have made a better offer, WSJ Pro reported. Gibson, founded in 1894, sought protection from creditors in May with a reorganization plan allowing senior secured bondholders led by KKR to convert their debt into equity. Blackstone Group LP’s lending arm, GSO Capital Partners LP, and other Gibson creditors, including electronics company Koninklijke Philips NV, have criticized what they say is a weak effort by the Nashville, Tenn.-based company to find a better offer. GSO, whose claims include $77 million owed on a secured term loan, and unsecured creditors have also questioned consulting and management contracts proposed for two top executives. In a filing Monday in U.S. Bankruptcy Court in Wilmington, Del., Gibson said it “extensively marketed” itself for more than six months before its chapter 11 filing to potential strategic and financial investors that it thought might be interested in a refinancing or an equity deal. No one other than the KKR group, Gibson said, was willing to make an investment at least equal to the approximately $500 million in secured debt on the balance sheet.
New Hampshire Fights Supreme Court Sales-Tax Ruling
New Hampshire is one of five states without a broad-based statewide sales tax, a status that had insulated retailers from a task familiar to businesses elsewhere, The Wall Street Journal reported. The cushion lasted until the U.S. Supreme Court’s June decision in South Dakota v. Wayfair, which lets states require retailers to collect sales taxes even if those businesses lack a physical presence in the state. This decision was a “huge mistake,” says New Hampshire Gov. Chris Sununu, who expects to sign legislation this week to make it harder for other states to impose collection requirements on New Hampshire retailers. “We’re not saying states can’t do it. We’re just putting up a lot of hurdles that states have to jump over,” Gov. Sununu said. “We’re not going down without a fight.” The Supreme Court cast its ruling as a reflection of changing business models, where physical presence of a retailer isn’t the bright line between state tax systems that it once was. For those doing business online, this now opens them up to tax-collection demands from outside New Hampshire. States with sales taxes are still figuring out how they’ll approach out-of-state retailers. New Hampshire, with a special legislative session scheduled for Wednesday, isn’t waiting to respond. Its reaction to the court’s decision will spur the next round of skirmishes over cross-border sales-tax collection.
Gibson’s Sales Process Comes Under Fire
Blackstone Group LP’s lending arm said bankrupt Gibson Brands Inc. has failed to properly market its assets, thereby favoring its proposed sale to senior secured bondholders, The Wall Street Journal reported. The investment firm added that it is willing to provide additional financing to give the guitar maker more time to consider alternative offers. Blackstone’s GSO Capital Partners LP is owed $77 million on a secured term loan the musical-instruments company had on its books as it headed into bankruptcy. The firm echoed earlier calls by unsecured creditors, including electronics company Koninklijke Philips NV, for Gibson to make a bigger push to find potential new buyers. GSO said it “would even be willing to help fund that process by providing” financing for Gibson during the bankruptcy, as well as when it wraps up chapter 11 proceedings, “to further stimulate bidding in an open-sale process,” according to a filing in bankruptcy court. Gibson filed for bankruptcy in May with a reorganization plan that would allow senior secured bondholders led by KKR & Co. to convert their debt into equity in the business, which was founded in 1894. GSO said there are other interested bidders, both strategic and financial, who might be willing to buy Gibson at a price greater than the recent valuation of the Nashville, Tenn.-based owner of such guitar brands as Les Paul and Flying V. Some potential bidders haven’t been contacted by Gibson about buying its assets, GSO said. Earlier efforts to find buyers have been “half hearted” and there has been a “failure to properly market” the company, GSO said.
Examining the Wayfair decision and its Ramifications for Consumers and Small Businesses
Witness List:
- Grover Norquist, President, Americans for Tax Reform
- Chad White, Owner, Class-Tech-Cars, Inc.
- Lary Sinewitz, Executive Vice President, BrandsMart on behalf of the National Retail Federation
- Bartlett Cleland, General Counsel and Chief Strategy and Innovation Officer, American Legislative Exchange Council
- The Honorable Curt Bramble, Past President, National Conference of State Legislatures
- Andrew Moylan, Executive Vice President, National Taxpayers Union Foundation
- Joseph Crosby, Principal, MultiState Associates Incorporated
- Andrew Pincus, Partner, Mayer Brown