Reluctance to Go Through Court Process
Belk, which operates almost 300 stores primarily in the Southeast, is talking with private equity firms KKR and Blackstone to transform a portion of its $2.6 billion debt into equity, according to a report in the Wall Street Journal.
All sides are interested in striking an off-the-court deal to avoid bankruptcy. Besides debt-for-equity exchange, new funding from these lenders is also an option.
Major lenders, especially KKR, are worried that the Chapter 11 process has proved to be difficult for other struggling retail businesses amid the COVID-19 pandemic. One of the major concerns raised by KKR is the high fees that the filling incurs, the report notes.
Bloomberg reported last week that Sycamore-owned Belk contracted law firm Kirkland & Ellis and investment company Lazard for advice as the business attempts to navigate through the company’s pandemic-inflicted crisis.
Belk, a company owned by Sycamore Partners, has struggled to cope with the new business trends where shoppers are purchasing goods mostly through ecommerce channels. The company delayed payments to its vendors in late 2020, according to Bloomberg.
Similarly, its peers Neiman Marcus, JCPenney, Stage Stores, and Lord and Taylor all filed for bankruptcy last year. Sycamore tends to buy struggling businesses and companies and turning them around. It bought Belk in 2015 and installed Lisa Harper as the new CEO a year later.
For instance, Sycamore acquired Ann Taylor and three other brands from Ascena Retail Group, which filed for bankruptcy in July last year. The private equity company is hoping to bank on Belk’s loyal customer base.
In July last year, Belk announced it was laying off a portion of its staff amid an unprecedented impact on the business due to the pandemic.
“In order to weather the impacts of COVID-19, Belk has had to make some of the most difficult decisions of its 130-year history. This included closing our stores to customers for more than six weeks and placing a large number of our associates on furlough in late March.
“The extended effects of the pandemic have necessitated the development of dramatic operational efficiencies. As a result, today we announced the elimination of a number of positions, primarily at our corporate office,” the company said in a statement.
Sycamore-owned Belk is in talks with major business lenders KKR and Blackstone to address the company’s $2.6 billion debt through an off-the-court process. Some of the options the business has discussed are debt-into-equity as well as new company funding.