Art Van is out of money and is liquidating and closing all stores

[TC Talks]

The longstanding Pasquale's restaurant is empty

Damn, that was a late night haunt of mine 35 years ago.

Mickey Shore had been the car audio department of ABC since at least 2002. That was the first and last time I've been in one of those places...

[WOHO]

Brian wrote: "... I’d like to bring the chair to the store and throw it through their fucking window...."
Thanks for giving me a good laugh today Brian- the sad thing is, that's probably how you really feel and what Art Van customers have been screwed-over. I questioned when they built a monster store in the Toledo suburbs then followed-up with worthless understaffed Sleep Shops in Toledo.

[TC Talks]

WOHO

A bit of advice: any business who yells at you and has sales every two weeks is probably not going to offer the best experience. That strategy is designed to create "Urgency" so you will buy now.

When I need a couch, I decide length, color etc and go online. Art Van didn't even show up in Google Shopping! How crazy is that?

[Rate This]

WOHO

A bit of advice: any business who yells at you and has sales every two weeks is probably not going to offer the best experience. That strategy is designed to create "Urgency" so you will buy now.

When I need a couch, I decide length, color etc and go online. Art Van didn't even show up in Google Shopping! How crazy is that?

That would seem to show a lack of an online marketing presence... inconceivable in 2020 but here we are...

"WHAT DO WE HAVE TO DO TO GET RID OF OUR EXCESS INVENTORY???????"

Now we know...

[Colonel Flagg]

The longstanding Pasquale's restaurant is empty

Damn, that was a late night haunt of mine 35 years ago.

Pasquale's still packed 'em in, but the kids were no longer kids, and wanted to retire. Sad.

[Mega Hertz]

Well, this would explain why when I had Art Van come out to fix my broken recliner in JANUARY, they had to “order parts” and have been jerking me around ever since. I’d like to bring the chair to the store and throw it through their fucking window.

I'd love to see this go down. Many retailers do say "Bring it back if you're not satisfied", but they made no specifications

[proxima3]

Well, this would explain why when I had Art Van come out to fix my broken recliner in JANUARY, they had to “order parts” and have been jerking me around ever since. I’d like to bring the chair to the store and throw it through their fucking window.

You're thinking of Discount Tire.

[mmg]

The longstanding Pasquale's restaurant is empty

Damn, that was a late night haunt of mine 35 years ago.

Pasquale's still packed 'em in, but the kids were no longer kids, and wanted to retire. Sad.

Big Boy will be taking over Pasquale’s

https://www.freep.com/story/entertainme ... 965268001/


Sent from my iPad using Tapatalk Pro

[audiophile]

I didn't realize Big Boy was sold. There new CEO sold their properties and now is leasing them back. Sound familiar?

https://www.crainsdetroit.com/restauran ... -ownership

[696lover]

Thanks for taking the time to share some details, 696.

I'm a little confused, though. Was the structure you explained set up post-sale or was it instead concurrent with the sale to Lee Partners?

I do not quite understand the role of the "in between" entity. Is this a situation where the real estate owner leases the stores/land to the intermediate entity, who in turn subleases the store/land to Art Van Furniture? Art Van Furniture pays rent to the intermediate entity, who in turn pays rent to the real estate owner? If so, my guess is the equity percentages when comparing the intermediate entity to the real estate owner vary somewhat. Perhaps part of the rent paid to the intermediate entity funded dividends to its equity holders?

It's hard for me to envision a scenario where Citi would agree to release 1st lien mortgages from the real estate just from normal course loan amortization. Commercial real estate mortgages placed in the capital markets often have 20 or 25 year amortization schedules, which means very little of the original principal balance would have been repaid by now. That is, of course, unless a bunch of excess cash flow from operations was used to prepay the loan.

Usually, when a company is suffering from financial deterioration, creditors look to increase collateral rights, not decrease them. My guess is the Credit Agreement must have contained some sort of asset coverage test, and that if a certain level of collateral coverage could be demonstrated, collateral deemed excess collateral would be allowed to be released. Any releases of real estate collateral must've occurred when the real estate loan borrower was still in good standing under its Credit Agreement.

If Thomas H. Lee walks away with any type of significant proceeds here, it means the senior secured creditors were all deemed unimpaired.

Let's face it. The family wanted to bring in private equity in 2017 for a reason. They saw the writing on the wall. Unfortunately, private equity's involvement in this case evidently made things worse, not better. The revolving door in the CEO's office and other distractions prevented the Company from overhauling its business model to adapt to modern shopping habits.

Main reason used to be to game the Michigan SBT tax. In addition to this use in the Art Van case, you can allocate passive income easier--plus in Michigan very long term leases, longer than 30 years, count as long term capital gains instead of passive income.* (*State dependent)

[MWmetalhead]

Tax avoidance - I should've known.

I appreciate the explanation.

TC Talks wrote:

Art Van didn't even show up in Google Shopping! How crazy is that?

Exactly. Their digital marketing strategy was pathetic. I don't even know if they had one. The web site, at least from what I remember a few years ago, in & of itself was decent. However, the retailer seemingly did *very little* to direct traffic to the web site!

[MWmetalhead]

Here's an article posted today at detnews.com; the writer apparently doesn't understand how a Borrowing Base line of credit works:

https://www.detroitnews.com/story/news/ ... 998571002/

A November 2019 adjustment to Art Van's asset-backed loan with Wells Fargo increased that credit line from $60 million to $82.5 million. That loan would lead to the unraveling of the company through liquidation and, now, bankruptcy.

Just two months later, in January, Art Van saw a reduction in its "borrowing base," or the collateral required for the loan.

A Borrowing Base reduction means the Company is able to borrow less. Sometimes, it follows a release of collateral, but usually it is caused by a deterioration in the value of existing collateral.

If a company is witnessing declining sales, for example, it will carry fewer accounts receivable on its balance sheet. The decline in AR means a decline in collateral for lenders. Borrowing Base value is tied to collateral value, and is governed by a lending formula - usually a percentage of "good" accounts receivable + some percentage of "good" inventory.

If uncollectable accounts grow or if the company is behind on payments to inventory suppliers, the Borrowing Base will shrink.

The Detroit News article indicates Art Van was hit pretty hard by the tariffs on imported goods from China, which I thought was interesting. I always assumed most furniture sold in its stores came from North Carolina.

Vendors obviously knew Art Van's financial picture was looking increasingly bleak. Some key vendors evidently cut off trade credit (probably because Art Van was already past due big time on a bunch of open invoices) in recent days. That, combined with an eroding borrowing base, left Art Van with minimal to no borrowing availability to fund day to day operations.

When February 28 came, Art Van apparently was "overformula" on its Borrowing Base, meaning collateral value shrunk to a number less than its outstanding Senior Secured revolving loan balance. The company evidently had insufficient cash on hand to be able to pay down the deficiency and still operate as normal.

Oh, did I mention who the lead arranging bank was on Art Van's Senior Secured revolver??

Wait for it....wait for it........


WELLS FARGO!!!

I'm not shocked at all that those pieces of shit underwrote Art Van's Senior Secured credit facility.

The fact Wells Fargo underwrote the transaction as an Asset Based Line of Credit (which usually requires monthly or more frequent Borrowing Base reporting, exhaustive field audits, at least an annual appraisal on all inventory, etc.) suggests to me Art Van's cash flow wasn't so hot in 2017, which has been my theory from the get go.

Well-established companies with great brand recognition who have solid cash flow and a stable earnings outlook don't need Asset Based Lines of Credit. They can get credit on much more lenient terms.

[MWmetalhead]

A couple more tidbits from the Detroit News article:

The filing contains a list of Art Van's 30 biggest unsecured creditors that are owed more than $60 million. Largest among them is the Sussman Agency, a Southfield-based advertising firm owed more than $7.8 million. In second place is Monroe-based La-Z-Boy Chair Co., owed nearly $5.2 million.

Now, we all know the identity of the advertising firm responsible for the nauseating TV ads over the years. Perhaps they have perceptual research showing the ads were effective. I personally couldn't stand three-fourths of the Art Van commercials. The Fourth of July and "March Mania" spots were among the worst.

For those wondering what Thomas H. Lee Partners recovered to date or will recover as a result of Art Van's fate...

A spokesperson for Thomas H. Lee told The News that investors in the acquisition, including THL, "will lose 100% of their principal investment in the company and never received any dividends or returns of capital from their investments."

See, not a vulture capital situation at all. Far from it. Thomas H. Lee lost its ass. They are a subordinated creditor at best and a common equity holder at worst. Their entire investment is "out of the money." Granted, we don't know how much of the $550 million purchase price was funded with their money versus senior secured loan proceeds from Wells Fargo.

In addition to the ABL Revolver, there was likely term debt as well. I suspect Wells Fargo (or a credit syndicate led by Wells Fargo) financed no more than $300 million of the purchase price. This was probably an $80 million to $90 million in annual EBITDA business when THLP purchased it. Perhaps a little more or a little less. If it was only, say, a $60 million EBITDA business, then THLP was nuts for doing the deal.

Maybe later this week I will endeavor to dig thru some of the court filings.

[TC Talks]

Unless they consider the real estate? Sometimes losing is winning.

Here's a theory:

A) The liquidation sale will produce profit
B) Have they actually filed for bankruptcy?
C) They continue to own the real estate and have tenants lined up
D) They take a hit but it's less than they are suggesting.

Art Van leaves a retail furniture deficit in Detroit. If 1/2 of those stores open as a furniture store, they will do great. Costco and Wairfar are not going to absorb all the market left open.

I would be looking at a reboot as a smaller leaner company with a larger drive time between locations. There is a silver lining here for someone.

[MWmetalhead]

Yes, Art Van filed last night.

Most bankruptcy filings occur on Sunday evening to allow for a clean transition from pre-petition to post-petition accounting. (The accounting week generally runs Monday through Sunday.)

THLP doesn't own the real estate.

It is certainly possible proceeds from the liquidation will be enough to make Wells Fargo whole. Anything left after they're repaid would go to unsecured creditors (vendors, customers with unfulfilled orders and unsatisfied warranty claims, etc).

I would be looking at a reboot as a smaller leaner company with a larger drive time between locations. There is a silver lining here for someone.

I agree with you on this point. Hopefully, the Art Van brand doesn't suffer the same fate as Toys 'R Us.

Of course, Radio Shack relaunched, and we all saw how "well" that went.