The Container Store emerged from Chapter 11 bankruptcy protection after the now-private company exchanged existing debt for equity, giving it funds for a profitable future under new ownership.
The take-private deal slashes about $88 million in long-term debt from the retailer's balance sheet and also brings a $40 million cash infusion to The Container Store. Prior to filing for Chapter 11 bankruptcy protection about a month ago, The Container Store's debt was climbing as the retailer based in the Dallas area dealt with a slump in sales from the sluggish housing market and increased competition as big-box retailers and discount stores took on organizational products.
“This is a new chapter in our journey as a healthier company well positioned to drive strategic growth initiatives forward," CEO and President Satish Malhotra said in a statement. "With our restructuring process now behind us, we have renewed energy and excitement to deliver for our customers. We are focused on optimizing our business, enhancing our portfolio of organizing solutions and services, and continuously improving the customer experience."
U.S. Bankruptcy Judge Alfredo Perez of the Southern District of Texas approved the prepackaged restructuring plan on Friday leading up to Tuesday's official emergence from bankruptcy protection. Lenders such as Golub Capital, Wells Fargo and LCM Asset Management supported the deal, according to court records. The plan is expected to wipe out existing shareholders while slashing the retailer's long-term debt in exchange for ownership of The Container Store.
The Container Store had 102 stores in 34 states at the end of last year, according to the company's website. The retailer had nixed store expansion plans prior to filing for bankruptcy protection.
The Container Store is exiting bankruptcy with a total estimated enterprise value of between $184 million and $216 million, according to court documents. The reorganized company is expected to have an equity value of between $8 million and $41 million, according to the plan.
The restructuring could prove to be a boon to real estate if the new capital is "the medicine it needed" to get its business back on track toward growth, said Bob Young, executive managing director of Dallas-based retail real estate firm Weitzman. Young is not tied to The Container Store's real estate but has watched the retailer evolve from a small specialty store to a national retailer.
"The Container Store has tremendous real estate," Young told CoStar News. "There are benefits of being a public company and benefits from being a private company, but one thing they both need to understand is debt can be a necessary evil to run a business, but liquidity is king."
Still, The Container Store has hired A&G Realty to review its real estate portfolio and potentially negotiate with landlords to modify the leases, according to court documents. More information about A&G's review of the retailer's portfolio was not disclosed. The Container Store declined to comment to CoStar News beyond the court documents. A&G didn't immediately respond to a request for comment from CoStar News.
The retailer's vendors and trade creditors aren't expected to be impacted by the bankruptcy, with goods continuing to ship to stores as the retailer continues its operations.
If the $40 million cash infusion puts The Container Store back on a path to growth, Young said the take-private deal could be a good thing for its real estate. Even with recent bankruptcies, the retail industry continues to evolve, and good space — which The Container Store has — is hard to find in key U.S. markets, Young added. But the outcome remains to be seen.
"I think the market is going to tell us if this was a good thing," Young said.