Unfortunately, Hudson’s Bay Company has hit some hard times financially. In real estate speak, Saks is gone, baby gone as they shutter all 80 of their stores and sell another 16 locations under their Saks banners. Speculative money Indeed, Restore Capital LLC, a longtime lender to the industry, is watching the recent transactions on retailer’s hands with concern. They have now filed a motion to prevent Hudson’s Bay from completing its lease deals with Ruby Liu. As local response efforts continue, this legal maneuver opens serious questions about the company’s asset management and financial recovery strategy.
In past months, Hudson’s Bay has been very much in asset liquidation mode. This applies to their leases and intellectual property, as the company seeks to maximize value in emerging from Chapter 11 bankruptcy. In May, the company followed those up with two large lease deals signed with Liu. The initial transaction was for $6 million and consisted of three pharmacies located in British Columbia-based mall pharmacies. This initial lease agreement received court approval last month, paving the way for Hudson’s Bay to continue its negotiations with Liu.
This second lease agreement expands on that first round with another 25 new leases, covering the provinces of Alberta, British Columbia and Ontario. It still needs judicial approval. The stakes couldn’t be higher. Hudson’s Bay expects to be liable for $7.5 million in rent expenses connected to this fruitless chase. The firm predicts that such professional fees will balloon to nearly $8.5 million in just the next seven weeks. A large share of this sum is due to the Liu agreement.
Legal Challenges Emerge
Restore Capital LLC has made matters worse by unnecessarily injecting itself into the fray with an inappropriate motion. They want to prevent Hudson’s Bay from selling any of the up to 25 leases to Ruby Liu, despite having lent the retailer money for the last two decades. Just last December, this very lender lent a whopping $151 million loan to Hudson’s Bay. Just a few months later, that same company was looking for creditor protection.
Restore Capital contends that Hudson’s Bay has incurred “exorbitant rent costs and professional fees” in its attempts to secure necessary landlord consents for the lease agreements. Restore’s motion notes that, according to landlords, they have already stated they will not provide consent. All the while, the retailer complicitly keeps doubling down on these promotions but never sees any real success.
“HBC has incurred exorbitant rent costs and professional fees in trying to obtain the necessary landlord consents with nothing to show for it, despite the landlords having indicated long ago that no consent will be provided.” – Restore’s motion
To ensure accountability, Restore Capital is also calling for the appointment of a “super monitor.” This individual would ensure any redemption of Hudson’s Bay assets is executed in a prudent manner. The lender claims that Hudson’s Bay is required to complete the transaction with Liu. If they don’t, it will result in an “irretrievable erosion” of collateral for Restore and other lenders with equity stakes.
Financial Implications for Hudson’s Bay
As Hudson’s Bay works to liquidate its remaining assets and wind down operations, this reality has set in with increasing fiscal urgency. Recent disclosures indicate that the company has spent an additional $18 million. This funding could have really jumpstarted its recuperation efforts. Tiffany Bourré, acting on behalf of Hudson’s Bay, stressed to the court that the company was serious-minded about taking care of its assets and affairs.
“continues to manage the monetization of its assets and the wind-up of its affairs in a responsible and diligent manner, appropriately balancing the interests of various stakeholders.” – Tiffany Bourré
The firm’s solvency has entered alarming territory. It’s considering the consequences of going after additional leases with Liu while fighting against current ones and debts that are on the horizon. The continued fight in the courts is likely to delay or derail these negotiations, putting further strain on Hudson’s Bay’s ability to recover.
Stakeholder Concerns
With Restore Capital actively opposing Hudson’s Bay’s moves, various stakeholders are expressing concern over the direction of the retailer’s liquidation process. The lender’s claims point to a larger concern over how well Hudson’s Bay is expected to steward its increasingly limited dollars.
Restore Capital’s motion reflects a sense of urgency among creditors who fear their investments are at risk due to Hudson’s Bay’s operational decisions. The ongoing legal process can result in long delays to transactions or the sale of assets.
“perversely being compelled to fund increases in their own projected shortfall.” – Restore
As Hudson’s Bay navigates these challenges, it remains critical for the company to demonstrate sound management practices while balancing creditor interests and stakeholder expectations.
