Hudson’s Bay is holding out hope that it can continue to keep six of its top-tier stores open in the face of insolvency, but time is running out for the once-vaunted retailer to secure a deal.
The Ontario Superior Court approved the beleaguered company’s proposal on Friday to liquidate most of its business, bringing a 355-year legacy closer to its final chapter. The six retail stores Hudson’s Bay wants to keep in normal operation could also enter liquidation if the company can’t come up with a solution to save its business by April 4. Those terms are in the proposed restructuring support agreement to be reviewed in court on Wednesday.
But experts and lawyers the Star spoke to are not optimistic that Hudson’s Bay will find buyers or investors to support a restructuring deal within this short time frame, especially after months of unsuccessful attempts.
“I suspect that the parties who would otherwise have the financial resources to purchase this brand and the stores that go with it are few,” said Timothy Dunn, an insolvency lawyer who is not involved in the Hudson’s Bay file. “It may very well be that the people who have the financial ability to do that have looked at the business model and concluded that it no longer works for their current day and age.”
The retailer had proposed liquidating its entire business before announcing it would seek to retain a smaller retail footprint. The revised plan to keep six stores open was bolstered by an unexpected spike in sales after Hudson’s Bay publicly announced it was seeking creditor protection, a lawyer for the company told the Ontario Superior Court last week.
The locations the company is planning to keep open, at least temporarily, are its flagship store at Yonge and Queen streets in Toronto, the store at Yorkdale mall, one at Hillcrest Mall in Richmond Hill, as well as three locations in Quebec.
Dunn said these brick-and-mortar stores likely have higher foot traffic and generate more revenue than the other stores facing liquidation, allowing them to sustain themselves for longer.
“Ultimately, though, the corporation has to have a restructuring plan that would see a payment to their unsecured creditors in an amount that would be acceptable,” said Dunn.
The company had about $3 million in cash on hand as of Jan. 1, as well as $1.13 billion in secured debt, and owed its nearly 1,900 unsecured creditors — such as brands, governments and landlords — about $520 million.
The need for additional financing is pressing — on June 13, two days before the liquidation sale is due to finish, cash-flow projections predict Hudson’s Bay would have $156 million in cash on hand after expenses, far less than its $257 million in senior secured debt.
Alex MacFarlane, an insolvency and restructuring lawyer who was one of the counsel representing Sears Holdings Corporation in the Sears Canada restructuring proceedings, said a component to the restructuring of Hudson’s Bay could include a sale process with regard to the company’s intellectual property. This includes the company’s iconic stripes and logo, and could be a means by which some of Hudson Bay’s secured lenders would be able to reduce their exposure.
As for the stores themselves, which have large, multi-storey footprints, MacFarlane said that the company may find it difficult to find buyers or other businesses to assume those leases.
Dunn said Hudson’s Bay is waiting for someone to come to the table and say, “I think that the real property assets combined with the business of the Bay have value to me in a smaller footprint that currently exists, and I’m prepared to pay significant money for that.”
The time leading up to April 4 is designed to “give the company one last chance to come up with a Hail Mary solution” to find financing that can pay its debts and preserve the brand name, he added.
While Dunn said he wants to believe there are still players in the market who can save the centuries-old department store, he isn’t hopeful and suspects Hudson’s Bay had been trying for some time to find a buyer or investor without success before filing for creditor protection.
Retail analyst Bruce Winder also doubts that Hudson’s Bay will be able to find a single buyer who would be willing to take the remaining six stores off the company’s hands, let alone dozens.
“Probably every property will have a different new tenant,” Winder said, noting that there aren’t a lot of investors looking for “giant three- or four-storey” boxes.
“They’re not going to have much luck because they’re too big,” he added. “There’s not going to be many people who go out and say, ‘Yeah, I’ll take all three floors thanks.’ I don’t have a lot of optimism on this current situation.”
