The pre-packaged reorganization came after the department store retailer said last month that its owner Sycamore Partners was in talks with the Belk lenders, including KKR and Blackstone Credit, for a restructuring support agreement. Such an arrangement allows the private equity firm to retain majority control of the retailer, with lenders taking a minority stake.
Earlier this month, the retailer said it would file on Feb. 24, with a confirmation hearing slated for the same day. That essentially means Belk filed the Chapter 11 petition in the morning, and with the reorganization plan and lender support in hand, the court had all the necessary information to hold a hearing to approve the plan by the afternoon. Seventeen affiliated companies also filed Chapter 11 petitions. Belk said it has assets and liabilities each in the range of $1 billion to $10 billion.
The one-day reorganization effectively recapitalizated Belk’s balance sheet.
The bankruptcy enables Belk to continue operating as normal, which allows vendors to breathe a sigh of relief, and the company is not expected to close any of the 291 stores it operates in 16 states.
The recapitalization would help Belk eliminate $450 million in debt. Lenders holding 99 percent of Belk’s first lien term loan and 100 percent of Belk’s second lien term loan holders are a party to the restructuring support agreement. Under the terms of the agreement, Belk can also raise $225 million in new capital and extend maturities on all term loans to July 2025.
“For Belk—the nation’s largest private department store chain, with approximately 17,000 employees across 291 stores primarily in the southeastern United States, which itself was in the process of a turnaround and adapting to the omnichannel world—the Covid-19 pandemic directly resulted in drastic declines in sales, revenue and liquidity,” William Langley, Belk chief financial officer, said in a statement filed with the bankruptcy court.
Langley said sales fell 32 percent year-over-year from the third week of March 2020 through December 2020, and that the retailer’s liquidity in April had declined 70 percent year-over-year. “Despite proactive steps taken by Belk’s board and management team before and during the Covid-19 pandemic to adapt to an evolving retail environment and manage its balance sheet, the massive and ongoing revenue and liquidity declines necessitate a realignment of the capital structure and immediate liquidity infusion,” the CFO said.
The recapitalization, with the support of lenders, “allows Belk to satisfy all trade, customer, and other non-funded debt obligations in full, maintain its approximately 17,000 workforce, and keep open all 291 stores,” Langley said, adding that bankruptcy court approval of the Chapter 11 reorganization plan is required for the recapitalization to be effective. Of the 17,000 associates, 8,000 are full-time employees.
Langley said that the plan does not impair any creditors, other than the parties that have overwhelmingly voted in its favor. “As a result, all general unsecured claims will be paid in the ordinary court of business. All contracts and leases will be assumed,” Langley said.
Langley’s statement offered a glimpse into the privately held retailer’s operations. Belk offers a “large and exclusive offering of private brands that differentiate its stores from competitors,” he wrote. Private brands total 17 in number, including a licensed arrangement with The Limited.
He said the company has invested in omnichannel technology enabling customers to buy online and pickup in-store or select curbside pickup, in addition to ship-from-store capabilities. Belk also has adopted a new clienteling system, stackable coupons, subscription replenishment services and same-day delivery.
Langley said the retailer’s integrated supply chain ensures goods arrives at stores in a timely manner and enables brick and mortar to fulfill web-based orders. Belk has three distribution facilities, with two located South Carolina—one in Blythewood and the other in Jonesville—and the third in Jackson, Miss.
Belk owns 64 retail locations, 76 ground leases and two distribution centers, with leases on other store locations and office spaces, the CFO said. The company will pay about $166 million in occupancy costs for fiscal 2021, he said. Belk “has relied heavily on physical consumer traffic, and resulting sales conversion, to meet sales and profitability goals,” he added.
In recent years, the macroeconomic headwinds have resulted in Belk taking proactive measures to remain competitive, including expanding its e-commerce platform, closing underperforming stores and streamlining its workforce, Langley said.