Hudson's Bay is responding vigorously to criticisms from one of its significant lenders, Hilco Global, regarding the management of its liquidation process. In a recent court filing, the department store's Chief Financial Officer, Michael Culhane, refutes Hilco's claims that the retailer mishandled its liquidation efforts and is irrationally pursuing a deal to sell 25 of its leases.
Culhane describes Hilco's allegations as "neither fair nor credible," asserting that the issues raised were often foreseeable and even exacerbated by Hilco's own actions and decisions during the liquidation process. He emphasized that many of the problems that Hilco complains about today are direct results of its involvement and should have been anticipated when it engaged in the liquidation activities.
Financial services firm Hilco owns Hilco Merchant, which serves as the lead liquidator for Hudson's Bay, and also owns Restore Capital, one of the retailer's primary lenders. Restore Capital was part of a lending group that issued $151.4 million to Hudson's Bay in December of the previous year. Recently, Restore Capital filed a court document accusing the department store of wastefully spending lenders’ collateral while attempting to negotiate a deal to sell approximately 25 leases to British Columbia billionaire Ruby Liu.
Ruby Liu aims to utilize these properties in Alberta, British Columbia, and Ontario to establish a new department store named after herself. Liu has previously secured leases for three properties at her malls from Hudson's Bay for a total of $6 million. Nevertheless, landlords have voiced their objections to Liu purchasing additional leases, citing her lack of a solid business plan, despite Hudson's Bay announcing the deal on May 23.
Restore Capital plans to request court intervention to terminate the lease transaction, which is pending both landlord approval and legal sanction. In addition, Restore has reinforced its stance with new documents, labeling the proposed Liu deal as "the most striking" illustration of why its confidence in Hudson's Bay’s management has deteriorated entirely.
Restore argues that the "illusory" deal is a "misadventure" that is causing substantial financial losses for lenders in terms of rent and professional fees, costs that might further escalate if the court approval process is delayed. They cautioned that if the sale does not proceed successfully, the expected revenues will not materialize, and the significant costs incurred would be unrecoupable.
In his affidavit, Culhane insists that the sale to Liu should progress as it promises to generate "significant" cash, and asserts that there are no alternative transactions with a higher likelihood of success. He notes that Liu has made a deposit of $9.4 million, indicating a total purchase price of around $94 million for the 25 leases. Furthermore, Culhane asserts that lenders stand to benefit from the Liu deal, a separate lease transaction in the works for the end of July, and an auction planned for Hudson's Bay's art and artifacts.
Culhane also revealed that the company believes lenders will eventually receive full repayment, as they are pursuing creditor access to a surplus from Hudson's Bay's employee pension fund. He dedicated the remainder of his affidavit to contest Restore's request to remove the company's board of directors and expand the powers of Alvarez and Marsal, the monitor appointed to assist Hudson's Bay through its creditor protection process.
Restore has suggested the appointment of Richter Consulting Inc. as a receiver, arguing that Hudson's Bay has mismanaged its liquidation by failing to properly close stores and remove inventory. However, Culhane defends the governance of Hudson's Bay, highlighting that Hilco, alongside other partners, has participated intimately in the liquidation since the company entered creditor protection in March. He indicated that Hilco had personnel on-site overseeing the liquidation at each store, and it had the authority to set pricing and timing for the sale of fixtures and equipment, thus underscoring their operational role in the liquidation process.
According to Culhane, Hilco had initially forecasted that the sales of fixtures would yield approximately $17 million, excluding taxes; however, actual sales fell short at about $10.7 million. He attributes this deficit to a delayed start in sales and a condensed timeline, as well as challenges in acquiring buyers interested in purchasing large quantities of goods. Additionally, the inadequate and insufficiently aggressive discounting of furniture and fixtures hindered sales, despite Hudson's Bay's ongoing requests for enhanced discount measures.
