J & M Sales – Court Approves Auction Results, Pegasus Trucking Acquires 84 Stores, Hilco Joint Venture Acquires 184 Stores

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October 17, 2018 – The Court hearing the J & M Sales case (i) approved the results of an auction held by the Debtors on October 8, 2108 and (ii) authorized the Debtors’ asset purchase agreement with Pegasus Trucking, LLC (the “Buyer”) [Docket No. 670].

The order states, “On October 8, 2018, Debtors conducted the Auction with respect to the sale of the Assets. At the Auction, Debtors determined the following bids to constitute the Successful Bids and Back-Up Bids, as applicable:  

(1) Debtors determined that the bid submitted by Buyer to be the Successful Bid for 854 of Debtors’ store locations as a going concern sale for (i) 76% of the aggregate cost value for Merchandise at such stores as of the closing date of that sale; (ii) $2,500,000 in cash at closing for (a) FF&E at the 85 locations and corporate headquarters; (b) lease designation rights for Debtors’ leases that are the subject of the Motion (which leases do not include the 74 stores that are the subject of the GOB Sales Motion [Dkt. 16]), provided however, that with respect to the lease designation rights if, through the sale of such leases, subject to those rights and the terms of the Asset Purchase Agreement, Buyer receives at least $500,000, then any amounts achieved by Buyer in excess of $500,000 shall be shared with Debtors on an equal (i.e., 50/50) basis; 

(2) Debtors determined that the bid (the ‘Initial Agency Agreement’) submitted by a contractual joint venture of Hilco Merchant Resources, SB360 Capital Partners, and Gordon Brothers Retail Partners, LLC (the ‘Agent’) to be the Successful Bid for the Merchandise and FF&E at Debtors’ remaining 184 stores as a liquidation bid for (i) 65% of the aggregate cost value for Merchandise at those stores as of the sale commencement date and (ii) the right to sell, for a 15% commission of gross proceeds from such sale all FF&E at such stores and the Debtors’ Distribution Centers, all as more particularly set forth in and memorialized in the Agency Agreement. 

Debtors also determined that in the event that the Sale does not close by 10:00 a.m. prevailing Eastern Time on October 19, 2018 (the ‘Going Concern Closing Deadline’), then they are authorized to enter into the ‘Backup Agency Agreement’ (together with the Initial Agency Agreement, the ‘Agency Agreements’ and the ‘Agency Transactions’) for the Merchandise and FF&E at Debtors’ at 84 of the Debtors’ remaining stores. The Backup Agency Agreement provides a liquidation bid for (i) 67% of the aggregate cost value for Merchandise at those stores as of the sale commencement date and (ii) the right to sell, for a 15% commission of gross proceeds from such sale, all FF&E at such stores and the Debtors’ Corporate Offices and Distribution Centers, all as more particularly set forth in and memorialized by the Backup Agency Agreement.  The Backup Agency Agreement only becomes effective if the Sale fails to close by the Going Concern Closing Deadline.  Further, other conditions precedent to Agent’s obligations under the Backup Agency Agreement must be satisfied before the Backup Agency Agreement becomes effective….The Stalking Horse will provide the Debtors with a guaranteed percentage of 75.0% (the ‘Guaranty Percentage’) of the aggregate Cost Value of the Merchandise, based upon the aggregate Cost Value of the Merchandise included in the Sale. The Guaranty Percentage to the Cost Value of the Merchandise is subject to adjustment depending on the cost value of the Merchandise. In the event that the cost value of the Merchandise is less than $119,000,000, each $400,000 (or pro rata thereof) increment decreases the Guaranty Percentage by 0.25%. Thus, the Agency Agreement provides the Debtors with flexibility to pursue whichever transaction will maximize their asset value and provide the greatest benefit for creditors. If the Debtors are unable to effectuate a restructuring or Going Concern Sale, the Agency Agreement and Approval Order would allow the Debtors to commence the Store Closing Sales no later than November 5, 2018. The Guaranty Percentage has been fixed based upon the aggregate Cost Value of the Merchandise included in the Sale being not less than $127,000,000 and not more than $135,000,000 (the ‘Merchandise Threshold’) as of the Sale Commencement Date.” 

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