After weeks of speculation about company finances, Big Lots announced that it filed for Chapter 11 bankruptcy protection after entering into an agreement with an affiliate of Nexus Capital Management under which the financial firm would acquire substantially all of the retailer’s assets and ongoing business operations.
Big Lots has initiated voluntary Chapter 11 proceedings in the United States Bankruptcy Court for the District of Delaware and asserted that it would continue to operate its physical store locations and its biglots.com e-commerce site, adding that it expects to pay vendors in full under normal terms for any goods and services provided after the filing. The speculation about a possible bankruptcy or new financing initiative became more heated after Big Lots announced last week it would postpone release of its second-quarter financial results, which had been scheduled for September 6.
Under the terms of the agreement with Nexus, Nexus will serve as the stalking-horse bidder in a court-supervised auction process. As such, a higher or otherwise better offer could preempt the proposed Big Lots/Nexus transaction. Any sale of Big Lots is subject to court approval and conditions related to the bankruptcy filing. If Nexus emerges as the winning bidder, the financial firm and Big Lots anticipate closing the transaction during 2024’s fourth quarter, the retailer indicated.
In connection with the court-supervised process, Big Lots has secured commitments for $707.5 million of financing, including $35 million in new financing from certain of its current lenders, in the form of a post petition credit facility, collectively constituting the DIP Financing Facility.
As part of the court-supervised sale process, Big Lots, which already has announced that it would shutter an undetermined but substantial number of locations, continues to assess its operational footprint and potential store closings according to the off-price retailer. Big Lots said it will evaluate and optimize its distribution center network, as well.
Upon court approval, Big Lots expects the DIP Financing Facility, coupled with cash generated from ongoing operations, to provide sufficient liquidity to support the company while it completes the sale transaction. Big Lots has filed customary motions seeking court approval to continue supporting its operations, including continued payment of employee wages and benefits and payments to critical vendors in the ordinary course of business, according to the company.
Big Lots set terms for critical vendor payments, and any deal with another purchaser would be focused on debt.
In reviewing the bankruptcy move, Pulse Ratings pointed out any critical vendor claim Big Lots seeks to pay would require the supplier to restore customary trade terms and sign a vendor agreement. Pulse Ratings also observed that outside of a $2.5 million cash component, the Nexus stalking-horse bid would mostly include the assumption of debt.
Big Lots noted prevailing economic trends, including inflation and high interest rates, have been particularly challenging to Big Lots, as its core customers curbed their discretionary spending on home and seasonal product categories representing a significant portion of company revenues. Big Lots maintained its underlying performance has been improving, but its board of directors chose to undertake a broad strategic review of alternatives to its ongoing business operations. The board decided entering into a sale agreement with Nexus and initiating the sales process under bankruptcy court supervision was the company’s best path forward to maximize value and ensure continued operations.
In announcing the bankruptcy filing, Bruce Thorn, Big Lots president and CEO, said, “We are proud of the work we do every day across Big Lots to provide our customers with unmistakable value and exceptional savings, as well as building stronger communities through our philanthropic efforts. The actions we are taking today will enable us to move forward with new owners who believe in our business and provide financial stability, while we optimize our operational footprint, accelerate improvement in our performance and deliver on our promise to be the leader in extreme value.”
Evan Glucoft, Nexus managing director, said, “We are excited to have the opportunity to partner with Big Lots and help return this iconic brand to its status as America’s leading extreme value retailer. The Big Lots business has incredible potential and we are confident that its greatest days are ahead.”
