By Craig Webb, President, Webb Analytics
A lending group that had fought True Value Co.'s plan to sell itself to Do it Best announced Oct. 31 it had reached an agreement that lets True Value keep using the lenders' credit line until a sale occurs on Nov. 22.
The announcement came on the second day of a hearing that--if the lenders had prevailed--could have forced the liquidation of True Value and damaged the operations of the 4,500 independent dealers in the True Value network. Those dealers collectively buy roughly $1.5 billion worth of products annually.
"Sanity has prevailed," said Bradford Sandler, an attorney for the unsecured creditors. "There are thousands of employees who are very grateful, to mention all the other constituencies. It's truly an extraordinary result."
As it now stands, the lenders will lose roughly $75 million worth of credit they had made available to the distributor. An attorney for the lenders warned that the deal with Do it Best still could fail unless the lenders get all $163 million of the $238 million they are owed, according to a transcript of the U.S. Bankruptcy Court hearing obtained by Webb Analytics. Do it Best had committed earlier to pay True Value $153 million, and under the new agreement it will provide a financial backstop of up to $10 million to ensure the lenders get $163 million.
The agreement should help TV achieve its goal of selling to Do it Best. Under the agreement, that now would take place around Nov. 22.
Do it Best also agreed to remove from the asset purchase agreement its inventory threshold/price adjustment, according to Drain.
“True Value will no longer be required to maintain a minimum level of inventory, and there will be no price adjustment on account of inventory levels at closing," Drain said. "This reflects the debtors’ and Do it Best’s comfort at this point that sufficient levels (of inventory) will be available, but it’s not a condition or affects the price in any way."
Vendors have submitted $60.5 million worth of claims for payment in the bankruptcy. Of that, $57.7 million of the claims are unsecured. Thus, it is likely that vendors also won't get all the money due to them.
True Value's creditors had feared the distributor would keep sopping up its credit line while the Chapter 11 process and sale to Do it Best went on. To keep that from happening, they have been pushing Bankruptcy Judge Karen Owens to bar True Value from using it credit lines to run the company while it was under protection from creditors under Chapter 11 of federal bankruptcy laws. True Value filed for Chapter 11 on Oct. 14. As part of that filing, it also said it had reached a sale agreement with Do it Best, making Do it Best the "stalking horse," or lead bidder, for True Value's assets.
When the sale happens, aside from the $163 million, the lenders would get 75% of what's left after other expenses, such as professional fees, wind-down reserves, and employee claims. That total amount is likely to be quite small.
Attorneys for the lenders also stressed that it's possible Do it Best might not end up with True Value is a higher and better offer comes along. Any bids would have to be filed by Nov. 8. The sale hearing would take place on Nov. 12, and the target closing date on Nov. 22.
There also could be last-second objections along the way. An attorney for five landlords who own sites where True Value has distribution centers said his clients need to make sure the agreement hammered out covers their rent and tax obligations.