Hardware Retailing The Industry's Source for Insights and Information
In a transcript obtained by Hardware Retailing from an emergency discovery conference held on October 23, the judge overseeing True Value’s Chapter 11 bankruptcy filing openly stated her concerns about whether True Value has been providing “adequate protection to the lenders” throughout the process.
In the transcript, concerns were brought before the court by PNC Bank, one of the largest lenders involved in the bankruptcy.
The judge stated that additional hearings will be held in the coming weeks to determine whether or not True Value is doing enough to provide adequate protection to its lenders. Adequate protection payments are made to secured creditors during Chapter 11 bankruptcy to compensate creditors for the ongoing use of assets by the debtor throughout the bankruptcy process.
The outcome of these upcoming hearings could potentially determine whether True Value can proceed with its Chapter 11 filing and the intended sale of its assets to Do it Best or if the company would be forced to instead liquidate all assets to satisfy lender claims.
According to a transcript of her conversation with attorneys involved in the filings, Judge Karen Owens said, “Whether the value of the stalking horse bid or the sales process is superior to a liquidation is simply not the test for adequate protection.”
Court filings indicate that, at the time of the initial bankruptcy filing, True Value owed approximately $238.2 million to its secured creditors.
Owens indicated that she was initially reluctant to make any statement so early in the bankruptcy process but her concerns over whether lenders’ interests were being adequately addressed by True Value and claims filed by PNC persuaded her to express her thoughts.
In the transcript, Owens says she was weighing in on the matter because she “…wanted to give the parties the opportunity to be free of (her) thoughts when negotiating a settlement of their own accord; however, it does not appear that that is happening and you brought this opportunity for me now to give you my thoughts ahead of time to avoid a very costly dispute that if it does go forward, as I suspect it will on Monday and Tuesday, will not end positively for the estate.”
Judge Owens went on to urge the parties involved to start settlement discussions in “great earnest” and warned that other cases cited in court transcripts in this matter should issue a clearer indication of the potential outcome of any decisions at future hearings, saying that the cases cited, “…did not go favorably for the debtors with this theory of adequate protection.”
Ultimately, the court decided to give the parties the next several days to engage in meaningful discussions but confirmed that all upcoming hearings will remain on schedule.
In closing, Judge Owens said, “I am going to keep the hearing on Monday and I look forward to the evidence and the arguments that will be presented at that time, but I would strongly encourage you to increase your settlement discussions in earnest as this type of argument is not relevant to adequate protection.”
True Value first announced that it had filed for Chapter 11 Bankruptcy protection earlier this month, and that its intention was to sell the majority of its assets to Fort Wayne-based Do it Best for approximately $153 million and additional considerations.
Since the initial filing, several of True Value’s creditors have raised concerns in court filings indicating that they don’t feel an asset sale might be the best course for them to recover any debts owed by True Value and that a liquidation of the company’s stated assets might be a better remedy.
Based on this most recent transcript, the court could likely rule on the direction of the bankruptcy and PNC’s claims in the coming weeks.
Hardware Retailing reached out to True Value but did not receive a comment and will follow up with additional coverage as it develops.
Follow along with all of the True Value bankruptcy news:
- True Value Files for Chapter 11 Bankruptcy, Do it Best Bids to Acquire Assets
- Do it Best CEO Adds New Insights to True Value Purchase Plans
- NHPA Offers Tools, Reassurances to Retailers Potentially Impacted by True Value Bankruptcy
- Industry Reacts to True Value Bankruptcy and Potential Sale to Do it Best
- Bankruptcy Judge Allows True Value to Use Cash Collateral While Lenders Push Back
