Rather than sell itself, Tuesday Morning will seek approval for a plan to reorganize as a standalone entity and exit bankruptcy
Earlier this month, Tuesday Morning signaled that it was formally seeking bids for all of its assets in bankruptcy — a sale of itself, in other words.
A sale is a quick way for secured lenders to get repaid and move on, and at the same time allows the bankrupt company to continue on for another day, under new ownership. Tuesday Morning may well have just been testing the waters, to see what, if any, interest was out there for the company and get a price tag on that interest.
Most of the retailers that have wound down and liquidated in bankruptcy this year at least tried to sell themselves first or expressed hope of a sale before closing shop.
J.C. Penney, like Tuesday Morning, pursued both a lender-led reorganization and a sale at more or less the same time. Penney opted to sell itself to landlords Simon Property Group and Brookfield Asset Management.
As late as last week, Tuesday Morning hadn't landed on a path. On Thursday, it said in a court filing that it would choose its path and let stakeholders know by Monday, and so it did.
Any number of factors may have influenced that decision, including the outside interest it received (or didn't) and the complex calculus of secured lenders. Lenders can potentially profit by trading out their debt investments for equity in a reorganized company, but that also means they have to wait on investment returns and hold ownership in the company.
Unsecured creditors welcomed Tuesday Morning's move to seek buyers after raising concerns that the retailer's executives might pursue a stand-alone reorganization in order to preserve their jobs and stock holdings in the company. A committee of creditors said in court papers that a sale process allowed "the market to speak" on whether a sale or reorganization made the most sense. But they objected to what they called Tuesday Morning's "absolute unfettered right to unilaterally pivot from a sale process to a plan of reorganization."
Tuesday Morning, founded in the 1970s, is a relatively small player in the off-price world, with nearly 700 stores and $1 billion in sales when it filed. It has had to compete with a cadre of ever-expanding powerhouses, namely TJX Cos., Ross Stores and Burlington. It filed for bankruptcy with plans to close a third of its stores.
Slimming down and reducing debt through a reorganization could potentially leave it a more profitable and healthy business. At least, that's the bet the company is making by going forward alone in bankruptcy and beyond.