Golfsmith Files Bankruptcy With Sport’s Popularity Fading

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  • Company lists assets, debt of as much as $500 million
  • Retailer will try to sell part of chain, close stores

QuickTake: Overhauling the Game of Golf

Golfsmith International Holdings Inc. filed for bankruptcy, hoping to reorganize or attract a buyer who can save the golf-gear retailer as the sport’s popularity fades in North America.

Golfsmith listed debt and assets of as much as $500 million each in Delaware court Wednesday, and said it would try to sell part of the chain as a going concern while shutting some stores. If that fails, the Austin, Texas-based company will liquidate, according to a resolution by Golfsmith directors included in the Chapter 11 filing.

The company blamed an aggressive plan that began in 2011 to open bigger stores that cost more to operate just as golf began to lose popularity.

“Unfortunately, the rippling effect of these market factors coincided with GSI’s company-wide expansion efforts, leaving Golfsmith with an oversized store footprint,” Brian E. Cejka, the chief restructuring officer, said in court papers filed in Wilmington.

A joint venture of Fairfax Financial Holdings Ltd. and CI Investments Inc. offered to buy the company’s Canadian business, which operates under the Golf Town brand. A separate bankruptcy case in that country will oversee the proposed sale, Golfsmith said. Fairfax, the Toronto-based insurer controlled by Prem Watsa, and CI, a Toronto investment management firm, hold about 40 percent of the company’s senior notes.

New Bids

Fairfax and CI have also signed a restructuring support agreement to help recapitalize and reorganize the U.S. business, Cejka said. Golfsmith will solicit new bids for the company, and if no better offer comes in, the U.S. business will be taken over by the senior noteholders, according to a company statement.

The U.S. business will try to restructure its operations by closing weak stores and refinancing debt. The company said Antares Capital LP will provide a $135 million bankruptcy loan if the court approves.

Golfsmith, which merged with Canada’s Golf Town in 2012 to become one of the largest specialty golf retailer in the world, is owned by OMERS Private Equity Inc., part of the Ontario municipal employees’ pension fund. The company operates 109 Golfsmith stores in the U.S. and 55 Golf Town stores in Canada.

The company owes $100 million on an asset-backed loan and C$125 million ($95 million) in second-lien notes that come due in 2018.

Tiger’s Absence

The golf industry hasn’t recovered the popularity it enjoyed at the turn of the century, when Tiger Woods dominated the sport and attracted hordes of new fans. Millennials in particular haven’t embraced golf’s slow pace and hours-long time commitment. The number of U.S. players declined to 24.1 million last year from 25.7 million in 2011, according to the National Golf Foundation.

Nike Inc. has said it will no longer sell equipment for the sport, and Adidas AG is trying to divest most of its golf brands. Sports Authority Inc. filed for bankruptcy in March with a plan to survive by closing unprofitable stores and wound up in liquidation.

Catalog Business

Golfsmith was founded in 1967 by Carl and Barbara Paul out of their home in Edison, New Jersey. The couple provided custom-made clubs and eventually opened their first retail store in Austin in 1972. Until the 1990s, the company primarily operated as a catalog business, according to court documents.

The first round of expansion began in 1995. Seven years later, First Atlantic Capital, a private-equity firm, bought a majority stake. Eventually Golfsmith merged with Golf Town and was taken over by OMERS.

The case is: In Re: Golfsmith International Holdings Inc. No. 16-12033, U.S. Bankruptcy Court, District of Delaware (Delaware)