February 19, 2019
Payless ShoeSource Canada, the Canadian subsidiary of the American discount footwear retailer, which operates 248 stores across Canada, obtained protection under the CCAA on February 19. The Payless Canada entities owe approximately $156.7MM (USD) under an ABL Credit Facility to which they are guarantors. Coinciding with the commencement of the CCAA proceedings in Canada, certain affiliates of the company filed for Chapter 11 bankruptcy protection in the US. Payless Holdings and other subsidiaries (the "Payless Group") had previously filed for Chapter 11 bankruptcy in 2017. The Payless Group also applied to the Ontario Superior Court of Justice as the foreign representative. Both the Canadian court and the US Bankruptcy Court approved a reorganization, which was effective as of August 2017. Despite these proceedings, the Payless Group has been unable to sustain profitable operations in the current retail environment. Although the Group sought to deleverage their balance sheet and implement cost-reduction by downsizing their corporate offices, terminating various employees and reducing their capital expenditures plan, its North American brick and mortar business continues to experience top-line sales decline. Despite efforts to negotiate with Payless Group's pre-petition lenders for additional credit, the Payless Canada entities have been unable to return to profitability, reporting a net operating loss of more than $12.0MM (USD) in 2018. As a result of the financial difficulties suffered, the Payless Canada entities are insolvent and unable to meet their liabilities as they become due. Since January 2019, Ankura Consulting Group, a consulting and financial advisory firm, has been engaged to act as Chief Restructuring Organization ("CRO") and provide advisory services to the US debtors, including the Payless Canada entities. The Payless Canada entities, which intend to seek court approval of a liquidation approval order, have also engaged Malfitano Advisors to assist as an asset disposition advisor. Together, they conducted a solicitation and bidding process for a liquidator which ultimately led to the selection of Great American and Tiger Capital Group as joint liquidators. Many of the Canadian stores will begin closing at the end of March. FTI Consulting was appointed monitor. Canadian counsel is Cassels Brock for the Payless Canada entities, Bennett Jones for the monitor, Norton Rose Fulbright for the ABL Agent, Wells Fargo Bank, Fasken for an ad hoc group of lenders and Stikeman Elliott for the liquidators.