The bankruptcy drama continues to unfold as Family Christian Stores awaits a decision by creditors on whether to agree to a deal set out by potential buyers of the beleaguered bookstore chain.
According to an Asset Purchase Agreement (the APA) plan filed last week in U.S. Bankruptcy Court in Grand Rapids, Mich, all secured and unsecured vendors have until August 7 to object to the sale of FCS to Family Christian Acquisitions, a subsidiary of the chain’s parent company. The purchase price for FCS will be between $52.4 million and $55.7 million. Should creditors approve the plan, the sale is set for an August 11th hearing that would allow the nation’s largest Christian retail chain to move out of bankruptcy.
If the plan is approved, Richard Jackson, who headed the group that bought Family Christian in 2012, will remain in charge of the retailer. Secured creditors of FCS include FC Special Funding, which is backed by Jackson, who owns both FCS and FC Acquisitions. Under the APA, FCS buyers (FC Acquisitions) will assume a $23.5 million debt owed to FC Special Funding, which, according to a statement filed July 13, will be paid in full.
The APA also denotes that trade creditors will receive an amount equal to 5% of what they are owed by Family Christian by Dec. 31, 2015. Consignment vendors, after agreeing to dismiss claims filed earlier, will receive $500,000 divided among them. At the time of the bankruptcy filing, documents indicated that Family Christian had approximately $20 million in consigned inventory from 150-200 vendors, and owed approximately $7 million to those vendors for products sold prior to the bankruptcy petition.
Consignment vendors can opt to receive a lump-sum payment at closing plus 10% of the value of any books sold after closing; or an amount equal to 35% of books’ value as these assets are sold after closing. Both options offer an estimated recovery of 14.5% of money owed. If not sold within a year, the consignment goods will be returned to the vendors regardless of which payment option is chosen. Credit Suisse, another FCS secured creditor, is owed $34 million, and will receive $6 million under the plan on offer.
The 45-page agreement also highlights important facts regarding vendors and creditors. 75% or more of consignment vendors, who were among the first to protest FCS’s original, failed plan to emerge from bankruptcy, must agree to the APA. Also, in an attempt to ensure business at FCS after the proposed sale, 65% or more of creditors that supply goods and services to Family Christian stores must agree in writing to “provide Trade Terms” to the business for no less than a year after the closing date.
The last provision is important because it is Family Christians' solution to the reluctance of publishers and other vendors to do business with the embattled chain, which led to more sales declines after the company filed for bankruptcy. According to the APA documents, Family Christian executives had at one point forecast sales in the fiscal year that began February 1, 2015 to rise 2.5%, but through May, revenue was down 11%. The chain finished fiscal 2015 with revenue of $216 million, down from a high of $305 million in 2008.
When Jackson's group bought the retailer in 2012 for $86 million they had hoped to revive the store's steady drop in sales, but the weak economy and digitization of books and other media further hurt business at physical retail stores, leaving the company with insufficient funding to adequately staff stores or improve their appearance.
According to the APA, FCS forecast that if the reorganization plan is approved in August, the sale will allow them to restock stores for the profitable holiday season and avoid additional bankruptcy expenses that run between $600,000-$700,000 monthly. If the court does not confirm the reorganization plan, FCS may change the case to a Chapter 7 case with a trustee appointed to liquidate all assets, or put a new reorganization plan in place. Debtors believe that the first option will offer no payments to creditors, and the second option is not realistic given its debt load and time constraints.