By Katie Buehler

Law360 (May 27, 2020, 4:08 PM EDT) -- Dallas-based discount home decor retailer Tuesday Morning Corp. filed for Chapter 11 bankruptcy Wednesday with a plan to close a third of its stores and reduce about $150 million in various forms of debt.

Tuesday Morning, which currently operates 687 stores in 40 states and employs more than 9,000 full- and part-time employees, said in bankruptcy filings that its debts include about $47 million in secured loans, $91 million owed to vendors and $16 million in rent payments.

The retailer, which relies only on in-store sales, said it tried to weather the coronavirus pandemic by furloughing 95% of its workforce, including retail, distribution center and corporate employees. It also attempted to work out rent abatement deals with landlords, but could only negotiate a handful of agreements to pay 50% rent during store closures. The company said it is now facing several eviction suits due to its unpaid rent bills.

"The prolonged and unexpected closures of our stores in response to COVID-19 has had severe consequences on our business," CEO Steve Becker said in a press release Wednesday. "Prior to the pandemic, we were gaining momentum in our merchant organization, growing our vendor base and improving brands, assortment and value for our customers while investing in our technology and corporate leadership. However, the complete halt of store operations for two months put the company in a financial position that can be effectively addressed only through a reorganization in Chapter 11."

The first round of store closures will begin June 1 and involves about 130 stores nationwide, according to court documents. The company announced in its press release that it plans to close a total of 230 of its lowest-performing stores and exit an additional 100 leases.

The store closings come despite a 10% increase in sales over last year for stores that have reopened since late April, according to court documents. Although those numbers make the company optimistic, it believes Chapter 11 is still the best route to take, said Barry Folse, managing director of AlixPartners LLP and lead financial adviser for Tuesday Morning.

"The better-than-expected sales have made debtors cautiously optimistic about the company's ability to weather the pandemic and emerge from these Chapter 11 cases well-positioned for continued success," Folse said in a declaration of support of Tuesday Morning's first-day motions.

According to court documents, the company has secured a $100 million debtor-in-possession financing agreement, in which it would receive half that amount after the court's initial approval and the other half after the court's final approval of the loan.

Tuesday Morning, founded in 1974, has a business model focused on making "opportunistic inventory purchases" from manufacturers, closeout sellers and other retailers and reselling the inventory for low prices, according to court documents. Its customers are drawn to the "treasure-hunting" experience they have in stores, the company said.

The discount home decor retailer is just the latest victim in a long list of businesses that have filed for bankruptcy due to coronavirus-related hardships. This month, Florida-based rental car companies Hertz Global Holdings Inc. and Advantage Rent a Car's parent company Advantage Holdco Inc. and Texas-based J. Crew, Neiman Marcus Group and J.C. Penney Co., among others, have all filed for Chapter 11 protection.

Tuesday Morning is represented by Ian T. Peck, Stephen M. Pezanosky and Jarom J. Yates of Haynes and Boone LLP.

The case is In re: Tuesday Morning Corp. et al., case number 3:20-bk-31476, in the U.S. Bankruptcy Court for the Northern District of Texas.

--Editing by Stephen Berg.

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