SPORTS AUTHORITY BANKRUPTCY
LIKELY TO BE FAST, FURIOUS AND CONTENTIOUS
Debtwire’s panel of journalists and analysts will recap the first-day hearing, discuss the
debtors’ dual-track plan and dissect the proposed roll-up DIP financings. | 8 March 2016
1. Opening Remarks: Andrew Ragsly, Managing Editor
2. Case Overview: Reshmi Basu, Associate Editor, Americas
3. First Day Action: Patrick Holohan, Court Reporter
4. Financial Insights: Phillip Emma, Senior Analyst
5. Legal Analysis: Jack M. Tracy II, Senior Legal Analyst
6. Q & A
In 2006, Sports Authority LBO’d by Leonard Green & Partners for USD 1.3bn.
In May 2015, company extends tenor on USD 340m mezz notes to 2018 from
2016 to avoid springing maturity on TL (TL quoted 87/90).
In November 2015, the company brings on advisors amid liquidity concerns and
operational fumbles (TL quoted 69/72).
Ahead of critical holding period, Sports Authority inks rescue financing from TPG
(TL quoted 69/72).
In late December, Sports Authority releases 3Q results, in which EBITDA slides
87% YoY (TL quoted 33/39).
In January, the borrower enters into DIP negotiations with existing lenders.
Concerns over valuation of collateral becomes a lightning rod in discussions, as
company elects to miss interest payment (TL quoted 29/35).
On March 2, company files for Chapter 11 protection. (TL quoted 13/16).
FIRST DAY ACTION
Hearing kicks off with little controversy. Judge Walrath quickly
approved the company’s motions for joint administration, cash
management, employee wages and retention of KCC as claims and
The proposed sale of consigned goods was the major issue of the day.
Some vendors, particularly Agron Inc. and ASICS, wary of company
selling consigned goods without their consent.
Parties plan a break from about 11:45 to 1:30, but don’t come back
until 3:30. At that point, still no agreement. Eventually, parties agree to
escrow 100% of consignment sale proceeds while they work on a longer
term deal. The second day hearing is set for 29 March.
The USD 695m DIP was relatively uncontroversial. Judge Walrath will
not allow the DIP lenders to have a lien on unencumbered assets of
Puerto Rico unit.
FINANCIAL INSIGHTS: CAPITAL STRUCTURE
PREPETITION CAPITAL STRUCTURE
ABL USD 650m Facility
Secured Debt Claim
Mezzanine Notes - Senior Subordinated Notes
L + 1.5%/ L+2.0%
L + 6.4%
L + 4.5%
17 May 2017
14 Jun 2017
16 Nov 2017
ABL Credit Agreement
FILO (Including Capitalized Prepayment Fee)
Total Secured Debt Claims
Mezzanine Note Principal (Sr Subordinated)
Mezzanine Note Interest
Reference Note Owed to Mezzanine Holders
Total Subordinated Debt Claims
Total Debt Related Claims
Paramus Loan Agreement (Secured)
Consigned Goods (Secured)
Total Debt and Other Claims
Claim Outstanding (USD m)
19 Feb 2018
The ABL was secured primarily by a first-priority security interest in
the inventory and accounts receivable and a second-priority interest
in the PP&E and intellectual property securing the term loan.
The company entered into the FILO Agreement on 3 November
2015 as a liquidity enhancement with collateral for the loan a
last-out, first priority interest in the ABL collateral and secondpriority interest in the term loan collateral.
The term loan is the only part of the capital structure with a
publicly quoted price. As late as 2 December 2015 the term loan
was quoted near 70, according to Markit but as reports started
surfacing that the company had engaged advisors to work with
management on operational and financial issues.
Source: First Day Declaration ("The Aguilar" document.)
FINANCIAL INSIGHTS: LIQUIDATION ANALYSIS
INVENTORY LIQUIDATION VALUE
USD m (except per store amounts)
Percent of Cost Liquidation Value
Inventory at 30 January at Cost
Assumed OLV (10% Ineligible)
Total store count
Inventory OLV per store (Actual)
Stores closing (from 18-week forecast)
Assumed liquidation proceeds
Residual Total Inventory Value after closure
Total DIP and FILO DIP
Proceeds from Store Closures
Adjusted DIP and FILO DIP
Coverage of DIP and FILO DIP
The Orderly liquidation value appraisals used by Gordon Brothers Retail Partners and Tiger Capital Group are not
available, but we have made assumptions based on the typical advance rates found in retail ABL deals. The 18-week
forecast provided by the company does not shed any light on proceeds from the liquidation, but does reflect the store
count going from 462 to 321 stores at the end of May.
The company stated that sales for Fiscal Year 2015 were USD 2.6b. With the company being marketed for sale, the
two most likely comps for valuing the revenue are Big 5 Sporting Goods and Dick’s Sporting Goods.
Big 5 trades at an EV/Revenue of 0.3x and Dick’s trades at 0.7x.
Using the store closure time-line from the 18-week forecast, we assume the pro forma annual sales post the store
closings will be USD 1.8b. Using the Big 5 valuation of 0.3x revenue, implies a value for USD 542m for the remaining
store base – if an industry buyer was inclined to purchase the remaining stores.
Source: Disclosure statement.
FINANCIAL INSIGHTS: CORPORATE STRUCTURE
Guarantors of TL and Mezz
Mezz reference notes
Sports Authority Holdings, Inc.
Guarantors of ABL
Slap Shot Holdings, Corp.
$277m TL due Nov. 16, 2017
$343m Mezz due Feb. 19, 2018
$650m ABL due May 17, 2017
$95m ABL FILO tranche due June 14, 2017
The Sports Authority, Inc.
TSA Ponce, Inc.
TSA Stores, Inc.
TSA Caribe, Inc.
TSA Gift Card, Inc.
Source: Disclosure statement.
LEGAL ANALYSIS: THE DIPS
Two DIPS Used Solely For Roll-Ups
USD 500m “creeping” roll-up of ABL.
USD 95m full roll-up of FILO at Final Order.
Debtors could fund cases on cash collateral alone.
DIPs Maintain Prepetition Collateralization Except:
Proceeds from leases.
Avoidance action proceeds (w/ cap).
Also adds super-priority admin expense.
Possibility of USD 25m Junior DIP.
LEGAL ANALYSIS: DUAL-TRACK PROCESS
Milestones End Dual-Track Process by May.
Likely avoiding May rent.
Term Loan Lenders Appear On Board.
Equity Splits Negotiation with Mezzanine Noteholders: 96/4.
From Undersecured to USD 80m Oversecured.
LEGAL ANALYSIS: LENDER LIABILITY
TPG provided Emergency Bridge Loan
Provided to get through holidays
Vulnerable to attack (Radioshack/Molycorp)
Cross-holdings with ABL will shed light on TPG’s “control”
Prepayment premium (2%)
Non-consensual Releases Highly Unlikely
Split in Third Circuit, appealed through Millennium Health
Likely GUC carrot in a plan to circumvent
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