TORONTO – An Ontario judge has rejected a restructuring agreement for Hudson's Bay, heightening concerns that the company may be pushed into receivership by its lenders. In a written decision released on Saturday, Ontario Superior Court Judge Peter Osborne stated that he found the agreement to be “neither necessary nor appropriate at this time.”
The rejected agreement aimed not only to provide Hudson's Bay with a deadline until April to rescue its remaining stores but also would have granted significant power over the debtor's creditor protection process to the retailer’s senior secured lenders, which include the Bank of America, Restore Capital, and Pathlight Capital. Under the terms of the agreement, Hudson's Bay would have been required to adhere to a weekly budget that it would report to the lenders, whose loans are secured by collateral, thereby allowing them to seize the retailer’s assets in the event of unpaid debts.
If Hudson's Bay had secured a deal with a potential buyer, lender approval would have been necessary, further complicating the company's operational leeway. Judge Osborne expressed reluctance to approve the agreement partly because the proposed budget was not made available for review by the court or other stakeholders. He emphasized that the agreement would have disproportionately favored lenders at the expense of other involved parties.
Osborne’s ruling is the latest development in ongoing creditor protection proceedings that have enveloped Canada’s oldest company since it acknowledged on March 7 that it was facing critical financial issues, which included deferring payments to landlords and suppliers.
As part of its restructuring efforts, Hudson's Bay started liquidating a significant portion of its stores, keeping only six out of its 80 Hudson's Bay locations, as well as 13 Saks Off Fifth and three Saks Fifth Avenue stores. The spared stores are located in the Greater Toronto and Greater Montreal areas. Furthermore, the company has reserved the right to adjust the number of stores included in the liquidation process.
The restructuring agreement was contentious, with many stakeholders viewing it as a potential barrier to lenders' inclination to seek court-ordered receivership, a process in which a third party takes control of a company's assets to repay creditors. During court hearings, lawyers representing Hudson's Bay and the senior secured lenders were tight-lipped regarding the judge's decision.
Last week, lenders argued in favor of the restructuring agreement. Linc Rogers, a lawyer for Restore Capital, commented, “We don’t want to fight. We don’t want to bring a receivership application. We are looking at this court and saying there is a better path forward.” However, landlords such as Ivanhoe Cambridge, Oxford Properties, and others contended that the best course of action was not to approve the agreement. They favored an alternative process whereby Hudson's Bay would explore bids from potential buyers for its entire business or assets.
David Bish, representing Cadillac Fairview, which owns 16 of the properties where Hudson’s Bay operates its stores, cautioned that accepting the restructuring agreement could severely hinder the retailer's future, effectively handing control over Hudson's Bay to the lenders. He remarked, “They aren’t incentivized to restructure. They are incentivized to liquidate.” In contrast, Rogers maintained that the request for protection was not a pursuit of reward but a necessity to stabilize the situation.
Throughout last week’s court proceedings, Rogers even proposed amending the agreement to extend Hudson's Bay an additional period to prevent the liquidation of its remaining stores, asserting that his client was “prepared to assume additional risk” to resolve the tensions peacefully. Meanwhile, Hudson's Bay's legal counsel supported the agreement but noted it fell short of providing the time and flexibility that the retailer desired.
This ongoing saga highlights the precarious financial state of Hudson's Bay, as stakeholders and legal representatives grapple with the future of both the company and its numerous locations across Canada.
