On March 11, 2020 (the “Petition Date“), Modell’s Sporting Goods, Inc. (“Modell’s”, or the “Company”) and thirteen of its affiliates (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey.
The Debtors are represented by Cole Schotz P.C. The case has been assigned to the Honorable Vincent F. Papalia. A hearing on the Debtors’ first day motions was held on March 13, 2020.
Founded in 1889 as a single store on Cortland Street in lower Manhattan, the Debtors are a family-owned and operated retailer of sporting goods, athletic footwear, active apparel, and licensed fan gear. Four generations of the Modell family developed the business from a New York-based retailer to a sporting goods powerhouse with an omni-channel footprint. The Debtors currently own and operate 134 brick-and-mortar stores located throughout the Northeastern and mid-Atlantic U.S. as well as online. The Debtors offer a selection of goods from well-known athletic brands to their target customers including athletes, sports fans, and fitness enthusiasts.
The Debtors’ business has been negatively impacted by adverse market trends the entire industry is facing, including the shifting of sales from traditional brick-and-mortar retailers to online resellers, increased competition from big-box and speciality sporting goods retailers, and a decline in sports team participation among youth and teens and changing consumer preferences. The Debtors’ report that their short-term financial performance has also been adversely affected by warm winter weather in the Northeastern states which negatively affected the sales of cold-weather goods and overall store traffic, lower-than-anticipated sales of licensed goods in the fourth quarter of 2019 based on local pro team performance, and inventory flow disruption during the first half of 2019 due to rumours surrounding the financial stability of the business. The operating losses suffered as a consequence of these issues further impaired the Debtors’ liquidity.
The Debtors and their advisors worked to develop strategic alternatives to maximize value for the benefit of all stakeholders. The Debtors’ CEO negotiated with vendors and landlords on terms of an out-of-court restructuring but was unsuccessful. The Debtors also engaged an investment banker and consultant to aid in a going-concern sale, beginning negotiations with a potential acquisition partner but reached an impasse. Without interest from other parties, it became clear a sale was not viable and the Debtors began closing underperforming locations. The Debtors determined that filing for chapter 11 protection, utilizing cash collateral, and pursuing an orderly liquidation of their assets in a controlled, court-supervised environment would be the best option to maximize value for all stakeholders. They believe the process, including the proposed liquidation of substantially all their assets, will provide the greatest recovery for their creditors (See Robert J. Duffy Affidavit in Support).
The Debtors owe approximately $29 million in revolving loans, $9 million for a term loan, and $4.5 million in undrawn amounts under letters of credit.
They also owe over $100 million in unsecured claims to trade creditors, landlords, pension plan liabilities, and in a deficiency claim to a second lien (subordinated) lender. This unsecured pool is likely to increase dramatically when all of the Debtors’ leases are rejected.
The Debtors seek access to cash collateral to preserve and maximize the value of the assets of each Debtor’s bankruptcy estate, and the recovery to all creditors and interest holders. Absent this access, the Debtors would not have sufficient sources of capital or financing and would be unable to pay their payroll and operating expenses or to maintain their assets. The Debtors have prepared an eight-week cash-flow budget of $2,589,000 which reflects their financial needs over the course of the cases.
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| Over $34 million. | |||||||||||||||
| Over $100 million. | |||||||||||||||
| FIRST DAY RELIEF FOR AUTHORIZATION TO PAY AND PAYMENTS | |||||||||||||||
| Interim Relief Unspecified. | Final Relief Up to $1,855,000. | ||||||||||||||
| Interim Relief Approximately $1.2 million. | Final Relief Approximately $800,000. | ||||||||||||||
| Interim Relief Total unspecified, but includes approximately $3.5 million in outstanding gift cards and approximately $1.1 million in loyalty certificates. | Final Relief Unspecified. | ||||||||||||||
| Employees: Approximately 341 full-time and 3,282 hourly, including unionized employees from Local 1102 RWDSU UFCW and Local 108 RWDSU. | |||||||||||||||
| The Debtors estimate the following amounts are outstanding as of the Petition Date: All amounts are approximate:
No payment shall exceed the statutory cap of $13,650. | |||||||||||||||