Party City preparing to file Chapter 11 bankruptcy

The retail sector has faced a flurry of bankruptcy filings this year related to the lingering effects of the COVID-19 pandemic, increased costs of doing business caused by high inflation, and higher debt payments from rising interest rates.

The most prominent retailer to file for Chapter 1 1 protection in 2024 was Big Lots, which filed its petition on Sept. 9 and sold its assets to private equity firm Nexus Capital Management for a $760 million bid, which included $2.5 million in cash, debt payoff and assumed liabilities.

The debtor planned to close 550 of its 1,400 stores under the bankruptcy case.

Home improvement retailer LL Flooring on Aug. 11 filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware in Wilmington also seeking a sale of its assets, after suffering from broad headwinds in the housing, repair, and remodeling markets that occurred when the Covid-19 pandemic subsided, court papers said.

LL Flooring agreed to a sale of its assets and distribution center to a subsidiary of private equity firm F9 Investments for a purchase price including a $1 million fixed amount, an inventory price of 57 percent of the landed cost value of acquired inventory, and assumed cure costs.

F9 acquired 219 stores and agreed to employ up to 1,000 workers, but the debtor still closed about 211 stores.

Another huge retailer might soon join Big Lots and LL Flooring in bankruptcy as the parent company of giant party supply retailer Party City is contemplating a sale of its assets or a possible Chapter 11 filing, Bloomberg reported.

Party City’s financial distress could lead to bankruptcy

Party City Holdco, which operates about 850 party supply and costume stores in the U.S., Canada, and Mexico, reportedly is behind on rent for some of its stores, is running out of cash, and lagging sales are making it difficult for the company to make payments on its large debt load.

Party City previously filed for Chapter 11 protection on Jan. 17, 2023, suffering from the effects of the COVID-19 pandemic which forced the closure of its stores and impacted its supply chain.

The company also faced a severe shortage of helium needed for the balloons that it sells and battled high inflation, which increased its costs of doing business.

When Party City filed bankruptcy, it had over $1.45 billion in funded debt and operated about 823 stores, according to court papers. The company closed about 60 stores and reached a restructuring support agreement with its lenders Monarch Alternative Capital and Siver Point Capital to eliminate about $1 billion in debt, fund $150 million in debtor-in-possession financing, and hand the company’s reorganized equity to the lenders.

Party City emerged from bankruptcy a first time in 2023

Under the agreement, the reorganized company received a new $562 million asset-based lending facility and a $75 million exit investment. The debtor’s reorganization plan was confirmed on Sept. 6, 2023, and it emerged from bankruptcy on Oct. 12, 2023.

Anagram Balloons, a Party City affiliate at the time and one of the retailer’s top suppliers, on Nov. 8, 2023, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas in Houston seeking to sell its assets to its first-lien note lenders.

Anagram sold its assets on Jan. 3, 2024, to prepetition investors, including funds managed by Barings, J.P. Morgan, Neuberger Berman Investment Advisers, and Littlejohn Co.

The Eden Prairie, Minn., balloon retailer manufactured and sold foil balloons and inflated décor domestically and internationally to party supply specialty stores, grocers, mass marketers, parks, drugstores, and discount variety stores.

The company sold products directly to retailers like Walmart, Dollar Tree and Canadian Tire and through domestic and international distributors. The balloon maker was not a debtor in Party City’s Chapter 11.