CHARLOTTE, NC – Belk filed for Chapter 11 bankruptcy in Houston on Tuesday night. This is the first step in the retail icon’s reorganization plan that will see its owner, Sycamore Partners, cede a significant share of the company to its lenders while retaining control.
If approved, the bankruptcy plan is expected to give Belk a further injection of capital and reduce its indebtedness by about $ 450 million.
The bankruptcy hearing, which is expected to be completed within 24 hours, is scheduled for Wednesday at 3 p.m. EST.
Just over five years after the Belk family sold the department store for $ 3 billion, Belk found itself bankrupt after massive debt loads, shifting consumer tastes and a dying business model were all amplified by the COVID-19 pandemic.
“The COVID-19 pandemic has directly resulted in a drastic drop in sales, revenue and cash flow,” Belk chief financial officer William Langley said in a bankruptcy-related file.
“Belk is here today with a concrete and comprehensive solution to its capital structure and liquidity issues,” Langley said.
After struggling financially for much of 2020, Sycamore announced that Belk would go bankrupt and restructure in January. Bankruptcy will not result in store liquidation, as has happened with other retail bankruptcies.
Belk has pledged not to make any layoffs or store closings in connection with the bankruptcy. Still, documents Belk distributed to lenders suggest cuts could come after bankruptcy.
On top of all this, the long term sustainability of a department store like Belk is uncertain.
Middlebrow department stores like Belk have seen their interest wane for years, while stores like TJMaxx, Sephora and Lululemon have attracted their customers. In a bid to capture changing tastes, CEO Lisa Harper said Belk will focus on home goods, outerwear and athletic wear in the future, according to bankruptcy post Reorg Research.
The bankruptcy brought up bittersweet memories of many in the Charlotte area, for whom Belk was the perfect place to buy a ball gown or their first job. With its head office on Tyvola Road in Charlotte, Belk has 17,000 employees and 291 department stores in the South.
The Belk family who controlled the business since its inception in 1888 were active in Charlotte’s civic and philanthropic life, and the Belk name is ubiquitous in Charlotte, on stadiums and on the highways. While the stores will remain, the bankruptcy signals the potential end of an era where Belk was not just a local store but a civic institution.
The location of the bankruptcy, the Southern District of Texas, may seem a bit out of place as Belk does not have stores in Houston. But the neighborhood is a hotbed of American bankruptcies.
US bankruptcy law effectively allows companies to choose where to file for bankruptcy. Belk joined Nieman Marcus and others in choosing the Houston site, where judges handle major corporate reorganizations faster than anywhere else.
Belk’s plan to get in and out of bankruptcy in just 24 hours is possible because Sycamore got Belk’s creditors to pre-approve the terms of the deal in what is called a bankruptcy. pre-packaged. Pre-approval leaves fewer people with the opportunity to raise objections and spoil the work of an ongoing bankruptcy.
In a series of proposals filed ahead of Tuesday’s bankruptcy petition, Belk sought permission from the court to allow it to continue doing everything from paying employees to operating its gift card program.
Bankruptcy judge Marvin Isgur is expected to accede to Belk’s demands, allowing the company to continue operating as usual for a period of time.
While Sycamore has said it expects bankruptcy swiftly, there is an outstanding objection to the bankruptcy plan being considered by the judge, according to the file from Belk’s CFO. The objection emanates from the Louisiana Department of Revenue, according to the record, without giving details on the merits of the claim.