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Law360 (April 20, 2020, 11:22 AM EDT) -- Sports-branded textile maker Northwest Co. LLC has filed for Chapter 11 in a New York bankruptcy court with more than $86 million in debt, saying the COVID-19 pandemic had accelerated liquidity strains stemming from years of quality control issues, rising tariffs and falling retail sales.
The New York-based maker of sports-branded blankets, throws and other home textiles said in bankruptcy filings Saturday its problems stemmed from the yearslong decline in brick-and-mortar retail sales and increased tariffs on Chinese goods along with specific quality control problems that saw it lose sales with retail giant Wal-Mart.
"The current public health crisis, while not the reason for the debtors' bankruptcy, has exacerbated the debtors' financial condition," CEO Ross Auerbach said in the company's Chapter 11 declaration. "As a result of these factors, the debtors took the necessary step of commencing these cases to preserve and maximize the value of their assets."
Northwest, which describes itself on its website as the No. 1 throw manufacturer in the United States, also manufactures blankets, pillows, towels, bath mats, backpacks and duffels. It has licensing deals with the National Football League, Major League Baseball, the National Basketball League, National Hockey League, Major League Soccer and the National Collegiate Athletic Association.
The company has a manufacturing facility in North Carolina and about 175 employees. According to the filings, it currently has just under $29.2 million in secured debt at $57 million in trade debt.
In the declaration, Auerbach said Northwest has been suffering from the declining sales that have been hitting the entire retail industry, but that its specific problems began in 2017, when it bought the sports-branded inventory of backpack maker Concept One.
Concept One had been a major supplier to Wal-Mart, but "quality control issues" in the acquired inventory prevented Northwest from integrating it with its own products, Auerbach said. At the same time, quality control problems with one of Northwest's vendors caused Wal-Mart to drop Northwest from a children's bedding program, he said.
"Then, in 2018, the U.S. government imposed a tariff of 25% on bags and backpacks imported from China," he said. "This tariff was in addition to the already high 17.6% duty imposed on that category of goods, and decreased both demand for the goods and the margins on their sale."
The declaration said Northwest had secured debtor-in-possession financing from CIT Group, the holder of $19.2 million of the company's prepetition secured debt, but did not detail amounts or terms. The DIP motion was not immediately available Monday morning.
Representatives of Northwest did not immediately respond to requests for comment Monday.
The company has retained Clear Thinking Group LLC as its financial adviser.
Northwest is represented by S. Jason Teele and Gregory A. Kopacz of Sills Cummis & Gross PC.
The case is In re: The Northwest Co. LLC et al., case number 20-10990, in the U.S. Bankruptcy Court for the Southern District of New York.
--Editing by Marygrace Murphy.
Update: This story has been updated with additional information.
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