In recent weeks, Sports Authority has garnered considerable media attention and speculation based on its well-documented financial woes, including an estimated $650 million in bond debt and revenues weakened by factors such as intense competition from national sporting goods retailers (e.g., Dick's Sporting Goods), newer specialty brands (e.g., Lululemon Athletica, Athleta) and Internet-based retailers (e.g., Amazon.com). These woes culminated in Sports Authority’s March 2 Chapter 11 filing in the U.S. Bankruptcy Court in Delaware.
Although most Sports Authority trade vendors were aware of this possibility, many have trepidation as to how to react to such news.The answers regarding how to react are not black and white, unfortunately, and will depend in large part on the particular relationship that a vendor has with Sports Authority.
However, among the guiding principles to which affected vendors should consider adhering is that of continued sales on credit. Without existing credit enhancements, vendors risk nonpayment for goods shipped to Sports Authority post-petition; however, those risks are mitigated by the fact that claims for post-petition shipments are entitled to administrative expense priority in bankruptcy. Since Sports Authority has lined up almost $600 million in debtor-in-possession financing, it should be assumed that it will have sufficient resources (at least at this time) to pay post-petition invoices. However, credit departments may wish to limit extensions of credit, or require cash in advance, until such time as Sports Authority can demonstrate an ability to satisfy such obligations.
- Thomas R. Fawkes, Esq. and Brian J. Jackiw, Esq., attorneys at Goldstein & McClintock LLP
For more advice on what credit managers should consider going forward in the Sports Authority situation or others like it, read the extended version of the article in this week's eNews, available late Thursday afternoon at nacm.org.