Online sales and missed trends are blamed for financial troubles leading to Sports Authority bankruptcy.
Sports Authority, a retailer that’s struggled to establish its relevance in the face of online competition and changing sports trends, filed for reorganization under the protection of Chapter 11 bankruptcy March 2.
In a statement, the big box retailer admitted it had lost market share to online retailers and missed some significant consumer trends, such as golf’s decline in popularity.
It also was swamped with debt: Rumors last month had Sports Authority negotiating with lenders to smooth the way for the filing. It had missed a $20 million interest payment on $343 million in subordinated debt maturing in 2018. It also laid off 100 employees at its corporate headquarters in Englewood, Colo.
With the filing, the company said it would work with lenders on restructuring its debt. It also plans to close or sell 140 stores and two distribution centers in Chicago and Denver. That process is expected to take up to three months following the court’s approval.
In a statement about the action, Sports Authority said it expected to have access to as much as $595 million in debtor-in-possession (DIP) financing in conjunction with the Chapter 11 filing in the federal court in Delaware. That funding, combined with cash from its operations, should give it sufficient liquidity to continue operations during the restructuring process.
Sports Authority Chief Executive Officer Michael E. Foss said in a statement: “We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry.
“We intend to use the Chapter 11 process to streamline and strengthen our business both operationally and financially so that we have the financial flexibility to continue to make necessary investments in our operations,” he added.
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Under Chapter 11 reorganizations for retailers, entities can be sold either to liquidators or to competitors or investors who intend to keep the concerns going. In the Sports Authority statement, Foss said, “strong interest” had been expressed by third parties in buying some or all of the company.
The retail chain posted a net loss of $156.6 million on total revenues of $2.6 billion for its fiscal year ending Jan. 30.
Sports Authority is owned by the private equity firm Leonard Green & Partners of Los Angeles and is legally incorporated as TSA Stores. The firm purchased the retailer from Kmart for $1.3 billion in 2006.
It currently operates 463 stores with about 13,000 employees in 40 states and Puerto Rico. Among its top unsecured creditors are Nike, owed $47.9 million, and Under Armour, owed $23.2 million.
This is not the first acquisition from the pre-Great Recession buyout boom to falter.
The biggest bust was TXU Corporation, acquired for $44.3 billion in 2007 by Texas Pacific Group, Kohlberg Kravis Roberts and Goodman Sachs. Now known as Energy Future Holdings, it has been in bankruptcy proceedings since 2014, owing some $50 billion to creditors.
Other troubled deals include Harrah’s Entertainment (now Caesar’s Entertainment), which had a 2012 initial public offering after its 2006 acquisition for $27.4 billion by Apollo Global Management and TPG Capital. It’s been battling some of its bondholders in court.
