San Jose, Calif.-based Orchard will retain its brand and continue to operate as a standalone business under the proposed deal with Lowe’s. “Orchard’s neighborhood stores are a natural complement to Lowe’s strengths in big-box retail, offering smaller-format hardware and garden stores catering to the needs of local customers,” said Robert Niblock, chairman, president and CEO of Lowe’s. “Strategically, the acquisition will provide us with immediate access to Orchard’s high density, prime locations in attractive markets in California, where Lowe’s is currently underpenetrated, and will enable us to participate in a larger way in California’s economic recovery.”
Orchard’s initial court filings listed about $441 million in total assets stacked against $480 million in liabilities.
Wells Fargo Bank and Orchard’s term loan lenders are providing the company with a $177 million debtor-in-possession credit facility, Orchard said. As of its filing, Orchard had about $107 million outstanding under its senior secured revolver, about $54.7 million outstanding under the first tranche of its senior secured term loan, and a second tranche, including accrued PIK interest, with about $74.3 million outstanding.
Orchard also listed about $40.9 million in outstanding trade payables, which Lowe’s would assume under the deal.
Orchard traces its current economic troubles back to “substantial overleveraging” in 2006, when the company was still owned by Sears. Sears spun out Orchard at the end of 2011. The company began to reduce its debt and, with the help of a new management team, launched a new store prototype designed to capitalize on Orchard’s niche as a midsize store – smaller than the big-box operations of Lowe’s and Home Depot, but larger than the small local shops run by Ace and True-Value.
Still, California’s economic decline beginning in 2008, continued competitive openings by Home Depot and Lowe’s, and “chain-wide operational deficiencies” saw sales at Orchard stores fall from almost $850 million in 2007, to slightly more than $650 million in 2010, the company said.
Orchard is seeking court permission to conduct immediate store closing sales at eight of its 91 locations. Hilco Merchant Resources and Gordon Brothers Retail Partners will serve as the stalking-horse liquidators at an auction for the rights to conduct the sales, court filings show. Orchard is asking the court for an auction to be held June 27 and a sale-approval hearing on June 28.
Orchard also proposed an Aug. 14 Section 363 auction in the Manhattan office of DLA Piper for the remainder of its assets, with a sale hearing on Aug. 20. Under the current proposed bidding procedures, Lowe’s will be entitled to reimbursement of up to $850,000 in fees and expenses, and a break-up fee of $6.15 million, or 3% of its stalking-horse offer. Any competing bid must include the break-up fee and a further $5 million, for a total offer of about $216.5 million. Subsequent bids must be made in increments of at least $2 million.
Orchard is being advised by investment banker Moelis & Company, restructuring advisor FTI Consulting, and bankruptcy counsel DLA Piper. U.S. Bankruptcy Judge Christopher Sontchi has been assigned to oversee the case.
A hearing on the company’s first-day motions has been scheduled for June 18, in Wilmington, Del. – John Bringardner