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Lenders urge bankrupt Bon-Ton to liquidate

Bon-Ton Stores Inc.'s lenders are pressing the department store operator to liquidate, making the company's attempts to reorganize its business significantly more difficult, bankruptcy attorneys told S&P Global Market Intelligence.

Bon-Ton's relationship with some of its lenders has broken down, Jared Clark, a bankruptcy attorney at Phillips Nizer LLP, said in an interview. The department store operator unveiled a restructuring plan before it filed for bankruptcy protection on Feb. 4. Bon-Ton did not respond to several requests for comment about the state of its relationship with its lenders.

A group of second lien note-holders have already urged Bon-Ton to immediately liquidate all of its inventory and assets as "the best and only available path," to maximize value for its lenders, according to a Feb. 6 filing with the U.S. Bankruptcy Court in Delaware. A group of lenders who hold about $223 million, or 63%, of second lien notes issued May 2013, made the filing. The group includes funds and accounts managed by or advised by Alden Global LLC, B. Riley FBR, Inc, Bennett Management Corporation, Brigade Capital Management, LP, Riva Ridge Master Fund, Ltd and Wolverine Asset Management, LLC.

Clark said the filing likely complicates Bon-Ton's bankruptcy proceedings. From here, the lenders will try to "derail" bankruptcy proceedings by convincing the court that Bon-Ton's restructuring plan will not make the company profitable enough to service its debt, which currently stands at about $1.15 billion, according to S&P Capital IQ.

"If a group like these second lien holders are motivated enough, they will have pored over the plan and come up with all its weaknesses," Clark said. "You have a very contentious process where the different stakeholders are duking it out."

Since it can not rely on its existing lenders, Bon-Ton's survival now depends on a third-party investor, said Brian Davidoff, a Los Angeles-based bankruptcy attorney for Greenberg Glusker Fields Claman & Machtinger LLP, in an interview.

"What's interesting in this case, they filed their restructuring plan prior to filing with the court," Davidoff said. "That suggests they want people outside of their negotiations with lenders to see what they are doing."

Bon-Ton's two-year restructuring plan involves shuttering 42 locations, increasing promotional activity for slow-moving merchandise and investing in e-commerce efforts. As of Nov. 30, the company operated 260 stores under the names Bon-Ton, Bergner’s, Boston Store, Carson’s ElderBeerman, Herberger’s and Younkers. The company said it expects the restructuring plan to increase its revenue to about $2.68 billion by 2020, up from the 2017 forecast of $2.56 billion.

It is too early to see if an outside investor will bite at Bon-Ton's restructuring plan, said Alan Behr, a partner and chairman of the fashion practice at Phillips Nizer LLP. Investors are becoming increasingly challenging to find for brick-and-mortar department stores and apparel companies as the industry faces fading market share with the rise of e-commerce.

"Bon-Ton did nothing especially wrong," he said in an interview. "It's a solid, mid-market retailer of quality product. The reality is that model isn't enough anymore."

The percentage of retail industry bankruptcies that ended in reorganization, rather than liquidation, spiked in 2017, according to an analysis by S&P Global Market Intelligence.