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The changes made by way of the 2005 Bankruptcy Code dramatically altered that timeline, effectively giving retailers only a few months to obtain approval for a sale or reorganization before getting forced into liquidation.

This accelerated time is most clearly visible in the 16 full reorganizations in our study.

Distressed retailers need the lengthiest runway possible to achieve an out-of-court turnaround or a well-planned bankruptcy.

A critical first step is to develop a detailed understanding of the retailer’s liquidity position, debt covenants, and other potential filing triggers.

Court approval is slated for the afternoon of June 23.

Indeed, according to a recent Alix Partners study, in the past 18 months only six debtors successfully reorganized or were sold- the other 10 were liquidated.

The driver of that accelerated timeline is Section 365(d)(4) of the code, which provides a maximum of just 210 days before unassumed store leases are deemed assumed—absent individual landlord approvals.

Given that rejecting leases before they are assumed creates a general unsecured claim that sits below senior lenders but that rejecting leases after they are assumed creates an administrative claim above senior lenders, senior lenders will typically enforce a timeline that ensures all unwanted leases get rejected well in advance of the 210-day deadline.

The height of the bar is driven largely by the liquid nature of a retailer’s assets.In contrast to other industries that are heavy in fixed assets, retailers typically have asset bases that are heavy in easy-to-sell inventory.Inventory can make up as much as 50% of a typical retailer’s assets and can usually be sold at attractive prices.In addition, another important 2005 change to the Bankruptcy Code was the introduction of Section 503(b)(9), which gives “administrative priority” status to vendor claims for the value of goods sold in the 20 days immediately preceding a bankruptcy filing.That effectively means a retailer must pay for those goods in their entirety in order to leave bankruptcy, because administrative-priority claims must be paid in cash on the effective date of a plan.

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