High stakes at True Value
Killingworth True Value owner Tom Cost says his central Connecticut store has experienced some inventory discrepancies and out of stocks from True Value for a couple of years. But the extent of the company’s financial problems came as a surprise.
“If the level of debt that’s been in the court filings is true, I cannot believe they’ve been able to keep it that quiet for so long,” he told HBSDealer. “I guess it’s all kind of finally bubbled up to the top.”
Those court filings —which involve plans of a bankruptcy sale of assets to Do it Best—presented a story of True Value in dire financial shape. In an Oct. 4 exhibit, attorneys from Skadden, Arps, Slate, Meagher & Flom described the company as “on the brink of collapse.”
“The ever-compounding pressure placed on [True Value] already has had a materially negative impact on the company’s relationship with its essential partners and created mass confusion across the company’s work-force,” the lawyers wrote.
Do it Best CEO Dan Starr, in an interview, pointed to True Value’s debts and liabilities in a range from $500 million to $1 billion, against assets of only $100 million to $500 million.
And while an Oct. 18 ruling from Judge Karen B. Owens gave True Value a significant degree of debtor in possession relief to True Value (“to avoid immediate and irreparable harm to the debtors and their estates,” the judge wrote), the situation remains fluid.
True Value provided a frequently-asked-question guidance sheet to vendors following its bankruptcy filing. In it, True Value said it would “pay vendors in the ordinary course for authorized goods receive and services rendered after the filing date.”
It explained that the distributor is prohibited by bankruptcy law from paying suppliers for goods or services rendered prior to the filing date of Oct. 14.
"Payment of allowed prepetition claims will be determined at a later date. At this time, we do not know the recovery for, or distribution to, holders of any such claims and therefore cannot speculate on the amount that would be paid."
The FAQ included this positive view: “At this end of the process, we are expecting to be part of a larger, more competitive company with greater resources to support our business and, in turn, strengthen our vendor relationships.”
[See the FAQ notice to vendors here.]
True Value and Do it Best have pointed to completion of the bankruptcy sale process by year end.
The high-stakes nature of the process is evidenced by a string of WARN notices that True Value has delivered to departments of labor in various states where True Value operates distribution centers. WARN stands for Worker Adjustment And Retraining Notification, and the WARN Act is a law designed to give workers advance notice of potential layoffs.
The layoffs may be avoided upon successful completion of the Do it Best deal, but WARN notices have been filed, including in Hanover Township, Pa., where 269 employees are potentially affected, in Kansas City, where 69 employees would be affected, and in Kingman, Arizona, impacting 62 employees.
At Killingworth True Value, Cost is taking a wait-and-see approach to the bankruptcy and the potential acquisition from Do it Best.
Cost pointed to one unexpected consequence of the situation that is having an immediate negative impact: the inability to place orders through True Value’s bill-through payment arrangement with STIHL. The retailer did not have a credit arrangement with STIHL and billed through True Value instead. “I’m kind of over a barrel now, because I cannot get parts or equipment.”
Cost said it might take vendors a while to get comfortable again with True Value.
“I feel really bad for anyone who already does not have a secondary vendor,” he said.
