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True Value cash collateral

Bankruptcy Judge Allows True Value to Use Cash Collateral While Lenders Push Back

On Friday, the U.S. Bankruptcy Court for the District of Delaware issued an Interim Order that gives True Value permission to use cash collateral from its lenders to pursue continued business operations while in Chapter 11 Bankruptcy, as well as to fund its proposed sale to Do it Best Corp.

The order was issued in response to objections provided on Oct. 16 by PNC Bank and a consortium of other lenders who do not support the Do it Best sale, and who say they did not consent to the use of their cash collateral in connection with True Value’s “path toward such a sale.”

PNC bank, along with Bank of America, Bank of Montreal, First-Citizens Bank & Trust, Huntington National Bank, Citizens Bank and Webster Business Credit, filed the objection to the court in response to True Value’s Chapter 11 filing Oct. 14, stating they don’t believe it will maximize their value. In last week’s court filing, it was revealed that True Value owed more than $238 million when it filed for Chapter 11 Bankruptcy protection, including $219.46 million in revolving loans and another $18.75 million in outstanding term loans.

While Do it Best has offered $153 million to purchase the assets of True Value, plus an additional $45 million to assume certain liabilities and trade payables, according to the letter from the creditors, the deal would cause them to lose upwards of $100 million after expenses are realized.

“The Debtors (True Value Company) have filed Chapter 11 cases and now seek to run a sale process to sell their business as a going concern to Do it Best Corp, financed with the nonconsensual use of the Lenders’ cash collateral,” the letter from the creditors stated. The banks claim that even if True Value could prove they would take less of a loss from the sale to Do it Best opposed to liquidation, the “theory is entirely premised on the Debtors discrediting, ignoring and/or misrepresenting the liquidation value analysis performed by the Debtors’ own (highly reputable and well-known) liquidations expert, Hilco Global,” it read.

According to the court filing, the bankers contend they didn’t receive full details from Hilco’s comprehensive net worth analysis that True Value commissioned before filing Chapter 11, and that they only received the lowest potential valuation submitted. “The analysis indicated a low-end liquidation recovery loss to the Lenders of $157 million…but did not seek to adjust the high-end and mid-range Hilco valuations, because the Debtor simply disregarded them.” These additional valuations did not appear in the court filings.

The same day that the lender opposition was filed, Megan Menzer—owner of Newton’s True Value in Cherryvale, Kansas, and a member of True Value Cooperative Company’s Board of Directors—in a separate court filing stated why she thinks Hilco’s report was flawed: “The Hilco Report overlooks the likelihood that, in the case of a liquidation, we store owners will focus on maintaining these relationships (with vendors) so that our stores can survive after the liquidation. Store owners are very skeptical of liquidation efforts and are protecting their own interests at this time, since our interests would not be aligned with those of the company (True Value) in a liquidation.”

In the court filing, Menzer also stated that she was aware that True Value was having trouble collecting receivables, with many customers beginning to slow pay invoices. She also mentioned that store owners “are likely to stop paying the company for drop shipments altogether, and will instead pay their suppliers directly, in order to preserve their relationships with them.”

In a liquidation scenario, she stated that retailers will redirect their “capital and efforts toward replacing the Company with alternative suppliers,” according to the court filing. “I can say with confidence that other store owners and I would be invested and cooperative in a going concern sale process, rather than a liquidation.”

The statements from Menzer echoed an Oct. 4 letter from True Value attorney Daniel Fiorillo to vendors that discussed True Value’s “deteriorating financial position” and stated that, because of not paying vendors and other trade partners, approximately 330 vendors have placed True Value on hold and refused to deliver products, and that logistics providers were threatening to stop services as well.

Vendors Receive Letter with Updates

On Friday, Oct. 18, True Value sent notifications to vendors with updates on the status of the bankruptcy filings, explaining what it means to them. (In full disclosure, NHPA, which publishes Hardware Retailing and Paint & Decorating Retailer magazines, is a vendor of True Value and received this letter.) In the letter, True Value provided details on the potential sale to Do it Best and asked vendors to continue to supply them with products and services moving forward during the bankruptcy proceedings.

“While this process moves forward, we are operating as usual,” the letter stated. “Our vendor relationships remain essential as we continue to serve our retailers with the right products and trusted expertise that are synonymous with the True Value name.”

The communication also offered details on payment to True Value’s unsecured creditors: “Obligations for go-forward goods and services are given priority payment status in Chapter 11, offering you additional protection from here on out.”

However, the vendor letter went on to state that payment for goods and services rendered prior to the bankruptcy filing date of Oct. 14 “cannot be paid at this time without the specific authorization from the Court…We are working on getting you the maximum recovery we can.”

Specifically addressing drop-ship orders, vendors were encouraged to continue to ship goods to True Value stores, as they normally would. “Please know the only appropriate way for these stores to send payments is to True Value, in accordance with the court’s approval. You should not offer to issue a credit or ask customers to pay you directly,” the letter stated. “This would be contrary to the law.”

It also mentioned that vendors with pre-filing claims have the right to appear and participate in the Chapter 11 proceedings. “We expect that an ‘unsecured creditors committee’ will be establish in the coming days, which will represent the interests of our vendors and our other unsecured creditors in our Chapter 11.”


Read the full breaking news story here. Plus, hear from Do it Best president and CEO Dan Starr, who shared additional insights into the True Value purchase plan, read how NHPA is supporting True Value retailers and the channel during this time with tools and resources and see how the industry is reacting to the news.

About Scott Wright

A home improvement industry veteran, Scott has spent the past 30 years at NHPA in various roles, developing programs and services to serve NHPA’s mission of helping retailers become better and more profitable. During his tenure, Scott has spearheaded the development of many of NHPA’s industry-leading training programs. Before that, he served as editorial director of custom publications for the association, where he was in charge of launching national B2B and B2C publications. He has a B.A. in journalism from Indiana University’s School of Journalism.

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