Philipson’s seeks OK in court for new financing

Mac Bullock
Staff writer
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Posted 4/5/19

Herb Philipson’s is seeking a judge’s approval to take out its first loan since declaring bankruptcy in October, according to recent filings in federal court. The sporting goods retailer is …

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Philipson’s seeks OK in court for new financing

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Herb Philipson’s is seeking a judge’s approval to take out its first loan since declaring bankruptcy in October, according to recent filings in federal court.

The sporting goods retailer is planning to open a line of credit with Crossroads Financial Group of Boca Raton, Florida, for a maximum of $3 million. Under the drafted agreement, Herb’s would pay a variable interest rate of at least 5.75 percent.

The deal is pending court approval in a hearing scheduled for April 10. Company owner Guy Viti declined to speak on specifics of the loan ahead of the court date.

In a March 27 filing, lawyers for the company told the court that the loan would provide “the critical liquidity it needs to swiftly complete the chapter 11 case.”

“In absence of this financing, (Herb’s) would be unable to replace its dwindling inventory and maintain its business ... or fund the administrative costs associated with this chapter 11 case,” they argued.

With three of the retailer’s nine locations shuttered since October, the company’s lawyers seem to be casting its chapter 11 woes as a needed downsizing.

“(A)ccess to (the Crossroads loan) will signal to the market that (Herb’s) will be able to reorganize and emerge from bankruptcy as a leaner and appropriately recapitalized retail business better suited to the conditions of today’s market,” they told the court.

Viti has also recognized that “today’s market” for retail is ill-suited to the brick-and-mortar, localized business model. “A lot of retail places have been going out of business ... This company won’t be one of them. Herb Philipson’s has got a legacy,” he said on Friday.

He continued: “Last year was the year of taking it apart. This is the year of putting it back together... It’s gotten to the point that we had to restructure the company, and restructuring the company means you’ve got to look at all the places where it’s not paying off, where it’s going to cost the company.”

Viti also said he doesn’t expect to close any more stores as the chapter 11 case proceeds. He said the company continues to employ around 250 in its locations in Rome, Oneida, Herkimer, New Hartford, Liverpool, and Watertown.

The focus heading into spring is to stock the company’s inventory with seasonal goods —largely baseball and fishing gear — while continuing to work through the restructuring process, Viti said.

The case began in October, when Herb’s largest lender, Second Avenue Capital of Needham, Massachusetts pulled support and moved to liquidate the company. Lawyers for the retailer say the company is now in a position to open another line of credit, having apparently paid down a large amount of Second Avenue’s claims.

“To date (March 27), (Herb’s) has paid approximately $1,385,000 in postpetition adequate protection payments (to Second Avenue) ... As of the date hereof, Second Avenue’s claim for principal under the Second Avenue Loan Agreement has been reduced to approximately $624,000,” attorneys said in a court filing.

As of October, the retailer owed Second Avenue over $2 million, according to court documents.

Second Avenue appears to be sated, as the lender hasn’t objected to any of Herb’s motions or filed at all in months, except to respond to a subpoena from January.

Not all of the retailer’s creditors are silent on the Crossroads loan, however — lawyers for Gary and Aviva Philipson, the son and wife of the eponymous Herb who sold the company to Viti in 2018, objected to parts of the deal on Tuesday.

The agreement, the Philipson’s’ lawyers say, only allows Herb’s to use the loan to purchase inventory, pay “certain professional fees,” and pay off remaining debt to Second Avenue. “It is not clear” that the company could pay back other creditors, including the Philipsons, through the loan, they argued.

The Philipsons also took issue with a provision in the loan that, if Herb’s defaulted and its assets were sold off, would allow Crossroads to take more than the sum that it’s owed, called the “liquidation success fee.”

“If the loan was $3 million, the success fee could be $150,000,” which “violates ... the bankruptcy code” and jeopardizes the Philipsons claims, lawyers argued.

According to their filing, Gary and Aviva Philipson have a combined $1.5 million in secured claims of the company’s assets.

According to Herb’s February operating report — the most recent month for which data is available — the company brought in $1,420,487.78 in revenues and spent $1,868,538.71, leaving a nearly $450,000 deficit. The company had $425,313.09 in cash on hand at the month’s end, according to the report.

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