Party City, a struggling retailer, is on the verge of collapse due to a sudden drop in inventory value that has left lenders demanding a $50 million reserve. The company had hired Hilco Valuation Services LLC to re-appraise its inventory, but the new valuation reduced the net liquidation value of key asset categories.
Lenders, who owe roughly $162 million under company loans, retained the same Hilco advisers for an annual inventory appraisal and initially demanded a $50 million reserve. However, in a revised appraisal, Hilco increased the valuation, but lenders maintained the reserve, forcing Party City to raise more cash “under an exceptionally accelerated timeline.”
Party City had sought additional investment from bondholders who took over the business after its first Chapter 11 filing in 2023, but these discussions failed to yield results. The company was left with no choice but to take drastic action, ceasing new inventory orders and delaying rent and vendor payments to preserve cash.
By December 10, Party City’s available cash had dipped below the $50 million reserve, prompting it to prepare a Chapter 11 filing soon after. Lenders plan to commence store closing sales before the Christmas and New Year’s selling season to maximize proceeds for all stakeholders.
Party City’s first bankruptcy hearing is scheduled for Monday morning in US Bankruptcy Court, Southern District of Texas (Houston). The company faces significant challenges ahead as it navigates its financial crisis.
Source: https://fortune.com/2024/12/23/party-city-bankruptcy-stores-closing-explained