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Hudson's Bay lenders file motion to terminate Ruby Liu lease deal
Some of Hudson's Bay Co.'s senior lenders are asking the court to terminate a contentious deal to sell off store leases to B.C. billionaire Weihong (Ruby) Liu, arguing that landlord opposition means the deal is unlikely to succeed and is wasting cash that should be used to repay the company's debts.
The new court documents, filed on Tuesday, are also seeking a 'super monitor' to take over the operations of the failed retailer, saying Hudson's Bay has mismanaged the wind-down of the business to the detriment of its lenders.
ReStore Capital LLC, the agent for a syndicate of senior lenders to Hudson's Bay, filed the motion seeking a court hearing next week into the matter. ReStore is an investment firm whose parent, Hilco Global, also owns the company that ran Hudson's Bay liquidation sales.
On behalf of the syndicate of lenders, ReStore closed a $151-million term loan with Hudson's Bay last December, to assist with the company's 'urgent working capital needs' and to enable its parent company, HBC LP, to close its acquisition of Neiman Marcus Group in the U.S. As part of that transaction, Canada's oldest retailer was hived off from a new entity, Saks Global, which owns Neiman Marcus as well as Saks Fifth Avenue, Saks Off Fifth and Bergdorf Goodman.
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Some of that loan to Hudson's Bay has already been repaid. For example, $27.7-million in proceeds from the $30-million deal to sell Hudson's Bay's intellectual property to Canadian Tire went to the syndicate of lenders, according to the court filing.
But ReStore argued that Hudson's Bay has incurred unnecessary costs as it winds down its business, and 'frittered away' the pool of cash available to make further payments on its debts.
Hudson's Bay, faced with mounting losses and $1.1-billion in total debt, filed for court protection from its creditors on March 7. Since then, failing to find a plan to rescue some of its stores, Hudson's Bay closed all of its locations across the country last month.
ReStore cites as an example of mismanagement the deal that Hudson's Bay struck with Ms. Liu, a B.C. mall owner, in late May to assign her up to 28 of its store leases. The court has approved the assignment of three of those leases, which are owned by her company, Central Walk. But the majority of landlords for the remaining leases have opposed the deal.
As a result of the impasse, Hudson's Bay is continuing to pay rent and professional fees related to the deal, 'in a seemingly futile effort to obtain the consent of the landlords,' according to an affidavit sworn by ReStore chief executive officer Ian Fredericks on Tuesday.
So far, those costs have included roughly $2.5-million in rent to keep control over the empty stores involved in the deal. Hudson's Bay has projected that it will pay another $7.5-million in rent between June 30 and Aug. 15 as it pursues the transaction, according to the affidavit, and millions more in feeds.
The lease deal is 'uneconomical and imprudent,' says the motion filed in the Ontario Superior Court of Justice.
'The current level of spending by HBC cannot be justified, and it is imperative that the costs of HBC's wind down be more effectively managed by the Monitor,' Mr. Fredericks's affidavit stated.
The lenders are asking the court to expand the powers of the court-appointed monitor overseeing the creditor-protection process, to allow for the management of the wind-down.
'Hudson's Bay continues to manage the monetization of its assets and the wind-up of its affairs in a responsible and diligent manner, appropriately balancing the interests of various stakeholders in compliance with CCAA court orders and under the supervision of the court-appointed monitor,' company spokesperson Tiffany Bourré said.
'The first lien secured creditor has filed court materials to advance its own interests and Hudson's Bay will fully respond in due course.'
Other objections raised by ReStore include $18-million in unnecessary spending by Hudson's Bay to remove signage at its shuttered stores, according to the court documents.
While Hudson's Bay's liquidation sales generated significant interest among Canadians, and resulted in $54-million more than expected in net recoveries from those sales, the lenders' projected collateral shortfall has expanded, the documents state.
That means the amount the lenders could expect to be repaid has fallen by at least $29-million, the motion says. Mr. Fredericks's affidavit calls the increase of costs on Hudson's Bay's part 'shocking.'
If the court does not approve the 'super-monitor,' ReStore is asking for the appointment of a receiver to take control of the process.
In the affidavit, Mr. Fredericks argued that 'there is no further alignment of interest between HBC's management and board of directors and the interests of creditors.'
