VOL. 126 | NO. 52 | Wednesday, March 16, 2011
Davis-Kidd Parent’s Bankruptcy Draws Ire
By Andy Meek
A group of creditors thinks the parent company of Davis-Kidd Booksellers in Memphis chose the wrong path in bankruptcy court.
The Joseph-Beth Group chose a reorganization track, which thus far has included store closures and other cost cutting. But the creditor group thinks liquidation might be a more appropriate path for the bookstore chain, the footprint of which includes the venerable East Memphis bookstore, 387 Perkins Road Extended.
Joseph-Beth filed a Chapter 11 bankruptcy in November and proceeded to close several stores. That included one in Nashville, which was the company’s only other store in Tennessee.
The Memphis store was one of a handful the company decided were its strongest locations and ones it could rally around.
The company’s reorganization plan was originally due March 3 in U.S. Bankruptcy Court for the Eastern District of Kentucky, where the bankruptcy petition was filed. But Joseph-Beth has requested more time.
A hearing on that request – plus criticism from an unsecured creditors committee – has been scheduled for March 23.
The creditors committee, to put it mildly, thinks the bookstore chain’s days are numbered and says the extension request should be denied.
In an objection the group filed to the company’s extension request, the group argued Joseph-Beth has been unable to secure exit financing on good terms, has not laid out how the company will turn around “their underperforming business” and has not yet put forward a practical plan to exit from bankruptcy that would meet with court approval. Also, Joseph-Beth’s bankruptcy-related debtor-in-possession financing expires on April 29.
“Their business is not complex, and no extensive, time-consuming analysis is required to formulate and propose a confirmable plan,” the group wrote. “The problem is, the debtors do not have adequate financing or cash, and their business operations are not stabilized. The debtors have informed the committee’s professionals that they have attempted to contact in excess of one hundred lenders, and received just one inventory-based financing offer bearing an exorbitant interest rate from a third-party lender. … Liquidation may be the only real alternative.”
The creditor group argues the inability of the company to secure financing is “conclusive evidence” the marketplace thinks the business is no longer viable.
“At this point in the debtors’ bankruptcy (case), it appears to the committee that the debtors’ unsecured creditors would fare better in a chapter 7 liquidation than they will under any reorganization scenario,” the objection filing reads.
Joseph-Beth owner Neil Van Uum could not be reached for comment. In a bankruptcy court filing, he said the stores Joseph-Beth chose to keep open “have withstood the negative impact of the various macroeconomic factors including the recession, Internet sales and e-readers, as well as the microeconomic factors including liquidity constraints and restructuring initiatives.”
Joseph-Beth has plenty of company in these troubling times for booksellers. Borders Group Inc., a far larger competitor of Joseph-Beth’s, is in the midst of exploring similar options for navigating an exit from bankruptcy court.
Borders filed for Chapter 11 bankruptcy last month. It’s slated 200 stores for closure and is considering whether to shutter up to 75 additional stores.
For now, the two Borders stores in Memphis – one a Borders store, the other a Waldenbooks-branded store – will, like Davis-Kidd, remain open.