Orchard Supply Hardware Stores Corp., the operator of 91 hardware stores mostly in California, won court approval of as much as $176.3 million in bankruptcy financing.
U.S. Bankruptcy Judge Christopher Sontchi, at a hearing yesterday in Wilmington, Delaware, approved the loans that will help fund operations as Orchard pursues a sale for at least 60 stores with a lead offer of $205 million from Lowe’s Cos.
Orchard Supply has met its “burden that the DIP is necessary from a business perspective,” Sontchi said at the hearing. Bankruptcy financing is commonly referred to as a debtor-in-possession, or DIP, loan.
“I believe the aggregate facility is necessary for the company” and gives suppliers confidence the company will have adequate liquidity to continue going forward, Chris Newman, Orchard Supply’s chief financial officer, told the judge.
The home-improvement retailer, based in San Jose, California, said it sought bankruptcy protection after sales declined in the state’s deteriorating economy, where 89 of its stores are located, and the U.S. slipped into the recession in late 2007. Orchard couldn’t hold on against larger rivals Home Depot Inc. and Lowe’s, and sales dropped 21 percent from 2007 to 2010.
The Lowe’s bid will be tested at an Aug. 14 auction, followed by an Aug. 20 hearing to approve the auction winner, according to court documents. Other potential buyers must submit bids to compete against Lowe’s by Aug. 9.
The case is In re Orchard Supply Hardware Stores Corp., 13-11565, U.S. Bankruptcy Court, District of Delaware (Wilmington).