A major lender of Hudson’s Bay says it is open to giving the embattled retailer more time to find a solution to save six of its stores, as landlords and employees continued to clash with senior lenders in court on Thursday over the best path forward.
The three major lenders of Canada’s oldest company — Bank of America, Pathlight Capital and Restore Capital — are pressing the court to approve a restructuring agreement they signed with Hudson’s Bay to maximize liquidation proceeds and recover some of the millions owed to them.
The proposal outlines restrictions on how Hudson’s Bay can use its cash and requires the retailer to liquidate the six stores it wanted to keep open if a solution to save its business is not reached by April 7, a deadline that Restore Capital said on Thursday it is open to extending.
Litigants were still awaiting a ruling at 5 p.m. from Superior Court Justice Peter Osborne who said he would announce his decision today.
Last Friday, the court granted the centuries-old company permission to liquidate most of its business including 74 Bay stores (36 located in Ontario), three Saks Fifth Avenue stores and 13 Saks Off 5th stores.
Hudson’s Bay was also allowed to put its leases with landlords for sale and kick off a sales process to seek last-minute buyers and investors for its intellectual property, including trademarks, along with some of its stores.
For the past two days, Osborne heard arguments from lawyers representing landlords and employees who worry that the two-week countdown is too tight to secure potential buyers or investors for its six stores and this agreement would “kills the chances” for Hudson’s Bay to explore restructuring opportunities.
In the face of vigorous objection from other stakeholders, Linc Rogers, a lawyer for Restore Capital, proposed in court to revise the agreement to keep the six stores out of liquidation until April 30 if the last-ditch restructuring solution is not found to save them.
This timeline aligns with an approved sales and investment solicitation process (SISP) that requires potential buyers to submit bids for Hudson’s Bay assets by the end of April.
“Our concern was, if it didn’t work, if there wasn’t a successful transaction, you now have to go into a liquidation at that point,” that would prolong the process, Rogers said, adding that his client is now willing to take on more risk to iron out disputes with landlords.
The foundation of the restructuring agreement is to mitigate the risk of unpaid debt, and the lenders have already made concessions. Otherwise, the six stores would not have been excluded from liquidation, he added.
The need for additional financing is pressing for the Canadian retail icon.
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.
But landlord lawyers strongly objected to the entire agreement, saying it would give the lenders control over the company and the restructuring process.
“What they want is monetization of their collateral. They want the liquidation. They want a realization. Again, they’re entitled to that,” said David Bish, a lawyer for Cadillac Fairview. “But why a restructuring support agreement for parties that don’t support restructuring?”
Bish said he is most concerned about a provision in the agreement that stipulates Hudson’s Bay is not allowed to seek, agree to, or fail to oppose any court motion approving a restructuring deal that differs from the one defined by the lenders — which requires full repayment of their secured debt.
The judge also took issue with the provision when the court-appointed monitor spoke in favour of the restructuring agreement, asking whether the company should at least be allowed to propose a restructuring plan if a potential bid emerges.
“Isn’t that fight for another day?” asked Osborne. “The whole point of SISP was to try to flush out of the market any manner and type of possible transaction and then deal with it when it comes forward.”
Andrew Hatnay, a lawyer representing some Hudson’s Bay employees and retirees also challenged one provision of the restructuring proposal that prevents the company from paying fees to any party’s legal, financial or other advisers.
In light of that employee lawyers may make claims to company later for counsel fees, he told the court that the agreement should not prohibit appoint representative counsel for the soon-to-be terminated 9,400 HBC employees, the disabled employees and larger HBC retiree population.
The company confirmed Wednesday that staff will not receive severance pay when terminated.
Paul Whyte, national communications representative for Unifor which represents about 500 Hudson’s Bay employees, said layoffs have not been announced in the e-commerce department, Windsor, Toronto’s Sherway Gardens and Kitchener stores.
“Local 40 e-commerce unit members on layoff have been recalled for the liquidation. This means senior workers cannot look for work elsewhere, even though they expect to be permanently laid off in June, because to do so places them in jeopardy of losing any severance recovery.”
With files from Nathan Bawaan
