A recent and well-known bankruptcy case illustrates the value of selling your bankruptcy claim. Dean & DeLuca, Inc., a company headquartered in New York that specializes in premium gourmet and delicatessen food and beverage products sold under the Dean & DeLuca brand, filed for protection proceedings in the Bankruptcy Court for the Southern District of New York in mid-2020.
What did that mean for claims trading and creditors with bankruptcy claims? First, that ceased all creditors’ attempt to collect on their debts. Many creditors who needed some kind of capital to continue operating declared bankruptcy themselves. One of the benefits of the four steps to selling your bankruptcy claim is immediate cash on hand. Otherwise you are forced to sit through bankruptcy proceedings, sometimes lasting years, for an award that may be practically zero.
Dean & DeLuca filed a Disclosure Statement in October 2020 that forecasted unsecured creditors might receive between 0 and 20% of the value of their claims over time.
Dean & DeLuca filed for bankruptcy with nearly $33.3 million in missed rents owed to New York City landlord. With about $100 million in net operating losses, and liabilities north of $495 million, it was an industry-shaking bankruptcy with high-dollar bankruptcy claims that had implications for creditors, like whether trade claim buyers would be motivated to buy their bankruptcy claims.
According to a list of the top 30 unsecured creditors, four landlords were owed more than $33 million. Midtown Equities was owed the most, almost $21.5 million. Next was another landlord, owed $9.2 million. Because unsecured creditors are the last paid, and thus more likely to recover next to nothing, selling a bankruptcy to a claims trader to avoid risk of recovery is always a serious consideration.
Sources close to the case indicate that despite being promised up to 20% recovery, general unsecured creditors actually only received approximately 10 cents on the dollar for millions in claims.
Its bankruptcy filing came after Dean & DeLuca had ceased its operations in the middle of 2019 due to financial challenges that hindered its expansion efforts. As a result of this, all retail outlets were closed, and leases were terminated. The company encountered a liquidity crisis that impeded its plans for growth, and thus needed to restructure its operations and financial situation. Selling your bankruptcy claim for cash now eliminates consideration risk — alternative forms of payment, such as promissory notes or stock equity, which can be difficult and time-consuming to liquidate into cash.
The company, in its first-day declaration, indicated that it aimed to reorganize in a way that safeguarded the value of the Dean & DeLuca brand, enabled the reopening of stores, rehired employees, and generated financial returns and new business prospects for its creditors considering selling their bankruptcy claims. The company entered into negotiations with major stakeholders, including Pace Development Corporation and Siam Commercial Bank Public Company Limited, with a view to devising a reorganization plan for its bankruptcy filings.
Underlying the bankruptcy filing were substantial operating losses and a liquidity shortage that arose following Dean & DeLuca’s acquisition by Pace in 2014. Although efforts were made to streamline expenses and restructure the company’s operations from 2017 onward, by mid-2019, the company found itself without sufficient funds to sustain its operations. Consequently, all self-owned retail outlets were closed, and direct retail activities were halted.
The company’s financial situation was reflected in its assets and liabilities, which were estimated to be between $10 million and $50 million in assets and between $100 million and $500 million in liabilities. The company’s debts include secured loans from Siam Commercial Bank Public Company Limited, totaling $750,000, and unsecured debts from the same bank, amounting to $45 million based on loan agreements from 2014, and $250 million from Pace, which were disbursed between 2014 and 2019 to fund operational activities and expansion initiatives that ultimately were unsuccessful. Additional unsecured debt of $25 million stemmed from trade, landlords, and other sources. The company’s equity ownership rests with Pace Development Corporation, which fully acquired Dean & DeLuca, Inc. in September 2014.
Assets held by the company included the valuable Dean & DeLuca trademark, assessed at a book value of $50 million, franchise agreements, and customer relationships estimated at $5 million in book value. The company also possessed net operating losses totaling $100 million, as well as older trade accounts receivable amounting to $700,000 and property and equipment valued at $20 million.
Before the cessation of its operations in 2019, Dean & DeLuca had been functioning as a prominent multi-channel retailer of high-quality gourmet and delicatessen food and beverage products, known for its Dean & DeLuca brand, which originated with the establishment of the first store in New York’s Soho district by Joel Dean and Giorgio DeLuca in 1977. The company’s expansion ambitions were hindered by the liquidity crisis, resulting in the discontinuation of its operations in mid-2019.
Pace Development Corporation had provided substantial financial support to Dean & DeLuca since its acquisition in 2014, with over $200 million being lent to aid the opening of numerous new stores and the execution of licensing agreements to promote and develop the brand. At its peak, Dean & DeLuca operated or licensed retail outlets across various regions, along with an e-commerce platform, and had plans to open additional outlets worldwide.
