More brands are seeking out-of-court workouts to avoid rising Chapter 11 costs
Filing for Chapter 11 can give troubled retail brands the power to walk away from their non-core leases. But the soaring costs of bankruptcy are now leading some top chains to restructure their leases out of court, according to a top real estate restructuring pro.
“While you cannot reject a lease in a non-bankruptcy, you can put a transaction together with a large number of landlords,” said A&G co-president Andy Graiser at Debtwire’s Restructuring Forum in Miami earlier this month.
Over the past two years, the New York-based A&G Real Estate Partners directed lease restructuring efforts for Party City, Big Lots, Joann, The Container Store, and Rite Aid that involve more than 4,000 leases and fee-owned properties. These efforts covered more than 110 million square feet of retail, office, and industrial real estate.
Major retail Chapter 11 filings have been on the rise in recent years, according to Debtwire’s restructuring database. Just three were filed in the stimulus-fueled economy of 2022. Over the last three years, however, 44 retailers filed for bankruptcy protection.
“Our message to landlords is straightforward,” Graiser said. “There’s a limited bucket of dollars that are available to pay lease termination fees. Either we resolve 90% of the leases in the next 30 or 45 days, or the company will have to file for Chapter 11.”
He noted that the out-of-court approach provides landlords with guaranteed termination payments that they would not have received in a Chapter 11 filing — giving them a strong incentive to work harder with retailers.
Graiser highlighted the benefits of a pre-packaged bankruptcy — sometimes called a “prepack” — in which creditors and the company agree to a detailed plan prior to the Chapter 11 filing.
“Prepacks — quick Chapter 11s — have worked out great,” Graiser told the audience at the Debtwire event. “I remember us working with Mattress Firm—35 days, 2,600 stores, 2,200 landlords, $350 million of savings. The point is, it can get done.”
