Ritz Camera, the largest specialty camera retailer in the U.S., filed a chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware on February 22, 2009.  Besides operating 800 photo stores, Ritz Camera also operates 130 boating stores under the name “Boater’s World Marine Centers.”  Read Ritz’s Affidavit in Support of Bankruptcy Motions here.

In 2001, Ritz acquired substantially all of the assets of Wolf Camera while Wolf  was in bankruptcy.  While the Boater’s World stores remained profitable through 2007, Ritz’s photo finishing business became far less profitable as consumers switched from film to digital photography.   The recession that emerged in 2008 only worsened an already challenging economic climate for Ritz.  By January 2009, Ritz’s lenders began reducing its available credit and bankruptcy became the only viable option.

Commercial Landlords Take Note

According to paragraph 22 of Ritz’s Affidavit in Support of Bankruptcy Motions,  “internal challenges including unprofitable store leases” played a significant role in Ritz’s decision to file for bankruptcy.  Like with many retail bankruptcies,  Ritz will likely file rejection notices for leases it deems a drain on  the bankruptcy estate.  Those stores that are more profitable will likely be assumed, or assumed and assigned.  For further information regarding issues relevant when a commercial tenant files for bankruptcy,  read my post titled “Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy”.

Debtors’ Financials

Ritz’s “first day” pleadings filed with the Bankruptcy Court indicate that prior to bankruptcy its lenders approved a $75 million debtor in possession credit facility.  Through its Motion to Approve DIP Financing, Ritz seeks authority to borrow up to $85 million.  At the time it filed its DIP financing motion,  Ritz and its lenders had not agreed to the $85 million DIP facility.

Going into bankruptcy, Ritz owes its lenders over $54 million.  Ritz issued subordinated debentures in 1995.  As of the petition date, the balance due under the debentures was over $13 million.  From 1991 to 2001, Fuji Photo Film Co., Ltd., invested $197 million in Ritz by purchasing various convertible preferred stock.  Ritz used the proceeds from the stock sale to Fuji to fund acquisitions.  Were Fuji to convert its preferred stock to common stock, it would own approximately one-third of Ritz’s class “A” and class “B” stock.

This bankruptcy proceeding is before the Honorable Mary F. Walrath, former Chief Judge of the Delaware Bankruptcy Court.  Click here to review Ritz Camera’s bankruptcy petition.