Party City is now set to emerge from bankruptcy with a lot less debt, but the company’s shareholders will be left holding the bag.
A U.S. bankruptcy judge on Wednesday approved the party goods and Halloween supply retailer’s Chapter 11 restructuring plan, which allows it to offload roughly $1 billion in company debt by converting it to equity shares that will be owned by its lenders.
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Judge David Jones signed off on the restructuring deal at a court hearing in Houston while acknowledging the poor outcome for individual shareholders whose shares will be wiped out. Party City simply could not repay all of its $1.4 billion in pre-bankruptcy debt and have money left over for shareholders, according to the judge.
“The math is what the math is,” Jones told a shareholder who spoke up at the hearing. “It’s one of those things where there simply is not an alternative.”
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Party City’s Ken Ziman said during the hearing that the company would emerge from the bankruptcy as a stronger business, and it will only have to close a “handful” of its some 800 stores, thereby preserving thousands of jobs.
Party City was straddled with $1.5 billion of debt financing when private equity firm Thomas H. Lee Partners bought most of the company in 2012 for $2.69 billion from Advent International, Berkshire Partners, Weston Presidio and company management. The specialty retailer went public in 2015.
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The company filed for bankruptcy in January in an effort to cut debt following dwindling sales.
Reuters and FOX Business’ Daniella Genovese contributed to this report.