Law360 (July 15, 2020, 11:05 AM EDT) -- Specialty gift and stationery store The Paper Store filed for Chapter 11 protection in Massachusetts, saying the COVID-19 pandemic had pushed its promising business into bankruptcy.
The Paper Store LLC has between $10 million and $50 million in assets and over $50 million in liabilities, according to its Tuesday filings in Massachusetts bankruptcy court. The retailer currently has 86 locations in seven Northeastern states, and its holding company, TPS Holdings LLC, has also filed a bankruptcy petition, the filing said.
Some of The Paper Store's largest unsecured creditors include Hallmark Cards Inc., which is owed over $1.2 million, and Vera Bradley Designs Inc., the filing said. The Paper Store estimated that it has roughly $13.5 million in general unsecured claims, including about $3.7 million for past-due rent.
The company said that in recent years it had invested in new stores, in modernizing existing stores, upgrading its distribution capabilities and expanding into digital and e-commerce sales. But the pandemic interrupted those plans, the filing said.
"In March of 2020, despite the optimistic prospects for the future of [The Paper Store], the sudden economic impact of the global COVID-19 pandemic derailed [the company's] plans," the court filings said. "In short, the filing of these Chapter 11 cases has been caused by the COVID-19 crisis."
The company temporarily closed its retail stores, and while many stores have recently been allowed to reopen, the disruption and additional safety costs have taken a toll on the business, the filing said.
The interrupted revenue also "exacerbated the debtors' issues related to substantial funded debt obligations and significant lease obligations," the filing said.
The Paper Store has about $45 million in funded debt, about $40 million of which is held by institutional lenders, court documents show. Among other loans, the company has a $17 million revolving line of credit with City National Bank, a term loan of close to $23 million from investment firm Kayne Anderson Capital Advisors LP, and a junior capital loan from a WestView Capital Partners affiliate. WestView is a Boston-based private equity firm that invested in The Paper Store in 2014, according to the filings.
The Paper Store said it is running short on cash when it should be stocking up on holiday inventory in preparation for its most profitable season.
"The debtors will soon run out of cash and will be unable to make timely purchases of holiday-season inventory, which are necessary in order to maintain the viability of the debtors as a going concern," the filing said.
Because of its high debt load, which is secured by liens on "virtually all" the company's assets, The Paper Store said it was unable to find funding on reasonable terms and instead must hold a sale. It proposed that an auction be held in late August, so the buyer will have time to stock up on holiday merchandise.
The company has been in talks with a prospective bidder, an entity backed in part by the company's founding family, the filings said.
"We are expecting a bid for the company shortly," Don Van der Wiel of G2 Capital Advisors LLC, who is helping advise the company, told Law360. "We have [also] received inquiries from several interested parties to learn more about The Paper Store."
The Paper Store plans to continue operating its businesses as usual during the Chapter 11 process, Van der Wiel added.
The Paper Store is the latest of numerous retailers to hit Chapter 11 amid the pandemic. The corporate parent of New York & Co. and other apparel brands filed for Chapter 11 protection Monday, and the American unit of Japanese home goods retailer Muji filed a Chapter 11 petition last week. Tea retailer DavidsTea filed a Chapter 15 petition to phase out its brick-and-mortar business, and kitchenware retailer Sur La Table has told a New Jersey bankruptcy court it's planning a going-concern sale.
A representative for The Paper Store did not immediately respond to a request for comment Wednesday.
The Paper Store is represented by Paul J. Ricotta and Kevin J. Walsh of Mintz Levin Cohn Ferris Glovsky and Popeo PC.
The case is In re: The Paper Store LLC et al., case number 20-40743, in the U.S. Bankruptcy Court for the District of Massachusetts, Central Division.
--Additional reporting by Jeannie O'Sullivan, Dave Simpson and Jeff Montgomery. Editing by Marygrace Murphy.
Update: This story has been updated with counsel information, additional information from court filings and comment from The Paper Store.
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