Fred’s files Chapter 11 bankruptcy, will close all retail locations

By Caroline Salls

Pittsburgh, Sept. 9 – Fred’s, Inc. filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware and has launched liquidation sales at all of its retail locations, according to a news release.

Fred’s announced in July that it would close an additional 129 retail stores and hold inventory clearance sales across all stores in an effort to refocus its product mix, simplify its store portfolio and repay debt.

After that round of closures, Fred’s had about 80 retail stores remaining, centered primarily around its distribution center in Dublin, Ga.

In Monday’s release, the company said it is committed to ensuring an orderly wind-down of its operations, and all of its retail locations are expected to close over the next 60 days.

SB360 Capital Partners, LLC will conduct the closing sales at 80 stores. The sale termination date is Oct. 31.

SB360 will receive a fee of 0.5% of the gross proceeds from the sale of the store assets.

Fred’s said it expects to continue fulfilling pharmacy prescriptions at most of its pharmacy locations, while it continues to seek a sale of its pharmacies as part of the court-supervised proceedings.

“Despite our team’s best efforts, we were not able to avoid this outcome,” chief executive officer Joe Anto said in the release.

DIP financing

In conjunction with the filing, the company has obtained a commitment for up to $35 million in new debtor-in-possession financing from some of its existing lenders.

According to an 8-K filed with the Securities and Exchange Commission, Regions Bank is the administrative agent, co-collateral agent and lender, and Bank of America, NA is a co-collateral agent and lender.

The six-month DIP facility will accrue interest at the greater of the Prime rate, the federal funds rate and Libor plus 325 basis points.

In addition, Fred’s is seeking court approval of various “first-day” motions that would allow it to continue paying employee wages and salaries and continue providing employee benefits without interruption, as well as other customary relief.

Debt details

According to court documents, Fred’s had $474.77 million in assets and $380.17 million in debt as of May 4.

The company’s largest unsecured creditors are Richard H. Sain of Murfreesboro, Tenn., with a $6.58 million trade/vendor claim; Bradley Wooldridge of Spring Hill, Tenn., with a $6.55 million trade vendor claim; PPS Data, LLC of Murray, Utah, with a $1.83 million trade/vendor claim; Deloitte Consulting LLP of Calgary, with a $1.74 million trade/vendor claim; and UXC Eclipse (USA) LLC of Tysons, Va., with a $1.21 million trade vendor claim.

Management changes

The company said in the 8-K that former chief financial officer Ritwik Chatterjee entered into a consulting agreement on Sept. 3 under which he will continue to provide transition services and other assistance to the company for three months.

On Monday, Mark Renzi was appointed chief restructuring officer to assist with Fred’s restructuring.

Kasowitz Benson Torres LLP is serving as the company’s legal counsel, Akin Gump Strauss Hauer & Feld LLP is serving as special corporate counsel, and Berkley Research Group, LLC is serving as restructuring adviser.

Fred’s is a Memphis, Tenn.-based operator of discount general merchandise stores and specialty pharmacy-only locations. The Chapter 11 case number is 19-11984.

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