GNC files for bankruptcy to manage debt with plan to sell

(Bloomberg) – GNC Holdings Inc. filed for bankruptcy protection with the aim of selling and closing stores after its latest effort to manage its debt load fell apart amid the coronavirus pandemic.

The Chapter 11 petition of the health and welfare company filed with the US Bankruptcy Court. USA In Delaware, it allows the retailer to continue operating while following a two-track process to restructure its balance sheet into a separate plan or complete a sale, according to a statement.

GNC entered the process with the support of most of its guaranteed lenders and a subsidiary of its largest shareholder, Harbin Pharmaceutical Group Holding Co., the Pittsburgh-based company said in the statement. The deal also includes its largest provider and joint venture partner, IVC. Certain lenders also provided $ 130 million in additional liquidity to financially support the company through its proposed restructuring.

The company’s pre-negotiated plan will close stores as it appears to be more nimble. He also agreed in principle to market and sell himself through a court-supervised process, with an initial bid price of $ 760 million, subject to court approval. A higher offer could be submitted and accepted, and would be implemented rather than just the separate plan transaction, according to the statement.

With the support of its lenders and stakeholders, GNC hopes to confirm an independent reorganization plan or complete a sale that will allow the company to exit its restructuring process by the fall. GNC’s international and US franchise partners and their corporate operations in Ireland, which are separate legal entities, are not part of the bankruptcy.

The change will be complicated by the temporary closure of retail industry stores to help stop the spread of Covid-19. That has been partially offset by the company’s e-commerce operations, whose sales increased 25% in the first quarter.

GNC has been led since September 2017 by CEO Ken Martindale. The former head of Rite Aid Stores was hired more than a year after former CEO Michael Archbold’s abrupt departure amid slumping revenue and a strategic overhaul that included the burden of debt and a possible sale of the company. Martindale was unable to stop the decline in revenue, and the first quarter of this year included a net loss of $ 200 million.

Redux debt

As available cash decreased, GNC warned that it could face bankruptcy unless it found a way to pay hundreds of millions of dollars of debt maturing in May. Management has been in talks with lenders about a refinance that would extend maturity dates and buy time for a change.

The bankruptcy plan requires a commitment from certain term loan lenders who agreed to provide GNC with $ 100 million of new money structured as a debtor-in-possession loan, and an additional $ 30 million from various changes to the company’s existing credit agreement, according to the statement. With increased liquidity and cash flow from ongoing operations, GNC said it will honor its “future financial commitments” as the process progresses.

The company has struggled in recent years, coming out of difficulties in February 2018 when it refinanced its loans and prepared a $ 300 million investment from Harbin.

Dropped sales

Most CNG outlets are located in shopping malls and shopping centers, forcing them to deal with the same drops in foot traffic that have affected other retailers. Sales in brick-and-mortar stores have declined further amid requests to stay home and the caution of some to venture out in public.

Over the past year, GNC began reducing its number of stores, while investing in its omnichannel and online presence, the company said. As part of the bankruptcy restructuring, GNC will seek to accelerate the closure of at least 800 to 1,200 stores.

“This acceleration will allow GNC to invest in the appropriate areas to evolve into the future, better positioning the company to meet current and future consumer demand worldwide,” the company said.

The chain sells health and nutrition products worldwide, including vitamins, supplements, minerals, herbs, sports nutrition, dietary and energy supplements. It has about 5,200 retail stores in the US. USA, including around 1,600 Rite Aid stores within one store, as well as operations in approximately 50 international markets.

GNC has its roots in 1935 when David Shakarian opened a health food store selling yogurt and sandwiches in Pittsburgh. The chain generated a wave of interest in nutrition, and eventually expanded to more than 9,000 points of sale. It employed about 12,400 people by the end of the year.

The company said it expects to file a lawsuit in a Canadian court seeking that the US process. USA Be appointed to cover assets there.

The case is GNC Holdings Inc., 20-11662, United States Bankruptcy Court, District of Delaware.

(Updates to the statement posted in the second paragraph. The name of IVC and the number of stores to be closed were corrected in an earlier version of this story.)

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