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Sports Authority Reorganization Hopes Fade as Bid Deadline Looms

Sports Authority Inc.’s hopes to avoid liquidation are fading.

With bids for Sports Authority’s assets and leases due Wednesday, Modell’s Sporting Goods Inc. has backed away from a potential deal for the chain that would have kept some of the stores operating under their current name, according to people with knowledge of the matter. 

New York-based Modell’s, the only potential buyer to express interest in keeping the Sports Authority brand going, had been in talks with the company and its creditors for weeks, said the people, asking not to be named because the negotiations are private. It walked away because the two sides couldn’t agree on a price, the people said.

Sports Authority has set a deadline of Wednesday for bids for an asset auction on May 16. That day, it also will auction 140 store leases. The company’s scheduled to appear in court by May 27 for sale approval, and it remains in talks with a number of possible bidders for the leases, including competitors Dick’s Sporting Goods Inc. and Academy Sports & Outdoors, the people said.

“We have received expressions of interest from a number of potential buyers,” a Sports Authority representative said in an e-mailed statement. “We are optimistic about the results of the M&A process, which runs through the end of May.”

Liquidation Push

A group of creditors that own the retailer’s $300 million term loan maturing in November 2017, including Blackstone Group Inc.’s GSO Capital Partners, has pushed the company to liquidate its stores, anticipating that lenders would receive a better recovery than what Modell’s was offering, the people said.

Paula Chirhart, a spokeswoman at Blackstone, declined to comment. Jason Karlowski, a spokesman at Modell’s, and representatives for Dick’s and Academy didn’t respond to requests for comment. 

The retail chain, which is owned by private equity firm Leonard Green & Partners as a result of a $1.3 billion leveraged buyout 10 years ago, still plans to auction off its store leases, the people said. As recently as last week, the company’s attorney Robert Klyman of Gibson, Dunn & Crutcher LLP told U.S. Bankruptcy Judge Mary Walrath that “liquidation is not in our vocabulary.”

Pointing Fingers

In addition, a dispute between the retailer’s senior lenders and some of its top suppliers has made it harder for the chain to reorganize. Last week in court, lawyers for the two sides traded accusations about who’s responsible for Sports Authority’s march to liquidation.

William Baldiga, attorney for the lenders, said certain vendors were “choking these debtors” by refusing to ship new goods to Sports Authority. Judge Walrath said there was plenty of blame to go around, but the consignment vendors “are not the ones who choked the debtors.”

Meanwhile, the suppliers pointed a finger back at the company’s lenders. Early in the case, Sports Authority budgeted about $180 million to buy enough products to keep stores well stocked. But suppliers balked, leaving shelves bare, Klyman said in court. David Kupetz, the lawyer for some of the consignment lenders, accused the chain’s creditors of squeezing so hard that it’s been unable to make deals to keep the stores full.

Sports Authority filed for bankruptcy protection in March. At the time, the Englewood, Colorado-based retailer said it planned to slim down and continue operating after exiting Chapter 11.

The case is In re Sports Authority Holdings Inc., 16-10527, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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