Anchor Blue Retail Group (“Anchor Blue”), the California-based clothing retailer, filed for Bankruptcy in the United States Bankruptcy Court for the District of Delaware on May 27, 2009 (the “Petition Date”). According to its Declaration in Support of First Day Motions (the “Declaration”), the company has over 2,800 employees and annual sales in 2008 of $370 million. Anchor Blue operates two different retail formats: the Anchor Blue stores and Levi’s and Dockers outlet stores.
Objectives in Bankruptcy
In the months leading up to bankruptcy, Anchor Blue sought to sell all of its assets as a going concern. The Company’s efforts resulted in it entering into two separate asset purchase agreements. In addition to the asset purchase agreements, Anchor Blue also entered into a debtor-in-possession financing agreement that provides financing for its bankruptcy proceeding while the company seeks to sell assets under section 363 of the Bankruptcy Code.
The 363 Sales
Under one of Anchor Blue’s asset purchase agreements, Levi Strauss & Co. agreed to serve as the stalking horse bidder for the purchase of the Levi’s and Dockers outlet stores. As the stalking horse, Levi’s will submit an initial bid of $72 million. Levi’s bid sets the “floor” for subsequent bids. In the event Levi’s is not the successful bidder, its asset purchase agreement contains a break-up fee with the Debtor for $1.75 million (subject to approval by the Bankruptcy Court).
Anchor Blue’s second asset purchase agreement seeks to auction off the Anchor Blue retail stores. Under this asset purchase agreement, Anchor Blue’s lender agreed to serve as the stalking horse bidder. Although the second purchase agreement contains certain protections for the stalking horse bidder, it does not provide a break-up fee like the one provided for Levi’s.
In order to improve its profitability, Anchor Blue, working with its financial adviser Duff & Phelps, prepared a list of unprofitable stores which Anchor Blue intends to close. According to its Declaration, Anchor Blue will conduct store closing sales that will allow it to sell the merchandise, furniture and equipment contained in the underperforming stores. By closing certain stores, Anchor Blue hopes to reduce its overall administrative costs and increase liquidity.
Whether Anchor Blue sells its stores, or closes unprofitable ones, landlords who lease commercial property to this company will want to know what happens when a debtor assumes or rejects a lease. Late last year, I wrote a post on this blog titled “Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.” Click here to read this prior post regarding issues that are relevant for commercial landlords when a tenant files for bankruptcy.
This bankruptcy proceeding is before the Honorable Peter J. Walsh, former Chief Judge of the Delaware Bankruptcy Court. You can review a copy of Anchor Blue’s Bankruptcy Petition here.