By Jeff Montgomery

Law360 (May 8, 2020, 11:01 AM EDT) -- Canada's Aldo Group Inc. took its American affiliates into Chapter 15 in Delaware late Thursday following a parent company move for protection from creditors in Quebec, citing a heavy debt load and pressures on the global fashion footwear business created by the COVID-19 pandemic.

The company, which has 3,000 owned or franchised stores globally, including 429 with 3,300 employees in the United States, counts Southwest Capital Holdings Inc. as its largest creditor, with an $800 million security agreement issued in August 2019.

Although a full summary of the company's debts was not yet available, documents filed under its Delaware Chapter 15 petition for recognition of a foreign proceeding show that Southwest also has a security interest in all of Aldo's U.S. assets. Bank of Montreal, meanwhile, ranks as the company's largest unsecured creditor at $300 million.

In a statement, company CEO David Bensadoun said it was no secret that the retail industry had faced rapid change and challenges in recent years, adding, "We were making strong progress with the transformation of our business to tackle these challenges; however, the impact of the COVID-19 pandemic has put too much pressure on our business and our cash flows."

Aldo cautioned that it would run out of cash by the week ending June 5, or potentially earlier, without interim financing. Its proposed solution was a $60 million debtor in possession loan provided by the National Bank of Canada with an initial draw of $10 million.

Among the pressures leading to the bankruptcy, the company said, were unpaid lease obligations for April and May both in the U.S. and Canada, with some $9.8 million in rents due to American landlords for April and $9.7 million for May. Trade creditors, meanwhile, are owed more than $113 million between sites in the two nations, with Canadian operations accounting for $76.3 million of the total.

In its Chapter 15 declaration, Aldo reported that the company had launched an overhaul of the business in 2019, attempting to scale back less productive brick-and-mortar retail operations while bolstering online, wholesale and franchise businesses

The effort ran out of time, however. Aldo was forced to close all stores in several countries, a 50% decrease in online sales, disruption of production in China and interruption of efforts to replace existing debt agreements.

Losses for the 12-month period ending Feb. 1, 2020, totaled about $170 million in Canada, while U.S. operations ended more than $97 million in the red.

"Without the ability to restructure its operations, the Aldo Corporate Group's financial projections for 2020 reflect that the company will not have the liquidity and capital base necessary to ensure viability of its operations, '' the company said in its declaration..

Aldo's parent already has taken bankruptcy equivalent steps in the Superior Court of Quebec under the Companies' Creditors Arrangement Act and is expected to initiate similar proceedings in Switzerland.

As part of the filing in the United States, Aldo said it would seek a court order shielding the business from collection efforts and pausing actions against its officers and directors on a provisional basis. Also requested was authority to sell some company assets and furnishings as store closings and consolidations proceed.

Bensadoun said the company expected to carry on business while pursuing a comprehensive, organizationwide restructuring.

Attorneys for the Chapter 15 foreign representative are Eric D. Schwartz, Matthew B. Harvey and Paige N. Topper of Morris Nichols Arsht & Tunnell LLP and Peter A. Ivanick, Lynn Holbert and Alex M. Sher of Hogan Lovells US LLP.

The case is In re The Aldo Group Inc., et al, case number 1:20-bk-11060, in the U.S. Bankruptcy Court for the District of Delaware.

--Editing by Katherine Rautenberg.

Update: This story has been updated with additional information about the filing.

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