Restructure THIS! Podcast Episode 28
Retail Bankruptcy, Then and Now, with Lorenzo Marinuzzi
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Listen to the podcast released July 7, 2026, here: https://www.sheppard.com/insights/podcasts/restructure-this-episode-28-retail-bankruptcy-then-and-now-with-lorenzo-marinuzzi
Sheppard’s Restructure THIS! podcast explores the latest trends and controversies in Chapter 11 bankruptcy, commercial insolvency and distressed investing. In this episode, Lorenzo Marinuzzi, Bankruptcy partner and global chair of Morrison Foerster’s Business Restructuring + Insolvency group, joins partner and host Justin Bernbrock to discuss retail bankruptcy, then and now, including how e-commerce and non-traditional lenders have reshaped the restructuring landscape, the unique dynamics of luxury retail cases and insights from the Saks Global Chapter 11 bankruptcy.
About Lorenzo Marinuzzi
Lorenzo Marinuzzi is a partner at Morrison Foerster, where he serves as global chair of the Business Restructuring + Insolvency group. Based in New York and Austin, he has practiced bankruptcy law for 30 years, representing debtors, creditors and creditors’ committees in complex bankruptcy cases, workouts and litigation across a wide range of industries, including retail, airline and cargo transportation, energy, oil and gas, banking and finance, mortgage origination and servicing, and telecommunications.
His retail bankruptcy work spans the full arc of the industry’s transformation—from early cases involving Ames Department Stores and Kmart to today’s luxury retail restructurings, including his current role as lead committee counsel in the Saks Global Chapter 11.
About Justin Bernbrock
Justin Bernbrock is a partner in the Finance and Bankruptcy practice group in Sheppard’s Chicago office, where he focuses on all aspects of corporate restructuring, bankruptcy and financial distress. He represents clients across a wide range of matters, including debtor and creditor representations. He has substantial experience in out-of-court and in-court restructurings, primarily in the Southern District of New York, Eastern District of Virginia, District of Delaware and Southern District of Texas.
Transcript
Justin Bernbrock:
Greetings. Welcome to Restructure THIS!, the Sheppard podcast devoted to corporate restructuring, where we discuss complex Chapter 11 practice, out-of-court restructurings and workouts, as well as other topics related to financial distress. I’m your host, Justin Bernbrock. Let’s restructure this.
Lorenzo Marinuzzi:
Bankruptcy is very expensive, and the lenders pay for it. So, when you represent a committee, you need to understand that time is money. There’s a fine line between being a flamethrower—“pay me or else”—and conducting a real analysis of what the committee stands to gain if it successfully prosecutes the challenges and claims it intends to bring, versus the cost of getting there and the impact that has on the case. And I think, if you recall, the mindset of this committee was, “We want this company to come out of bankruptcy as a strong and healthy company.” That doesn’t exactly gel with, “We’re going to go and litigate this thing until we get a final decision from a judge, even if it means the DIP blows up.”
Justin Bernbrock:
The past year has seen a wave of retail bankruptcies, such as Eddie Bauer, Francesca’s, Fossil, and Saks Global. Some say that Gen Z may revive brick-and-mortar retail shopping, but macro distress in retail continues to linger. Let’s face it: buyers prefer the convenience of online shopping, and COVID changed our shopping habits for the long term.
On this installment of Restructure THIS!, we welcome Lorenzo Marinuzzi, global chair of Morrison Foerster’s Business Restructuring and Insolvency group. Lorenzo has represented creditors in retail bankruptcy for decades. He was there when Ames Department Stores and Kmart filed Chapter 11, and he now represents the Unsecured Creditors Committee in the Saks Global Chapter 11 cases.
Justin Bernbrock:
All right, and we’re back with another episode of Restructure THIS! Today’s guest, as you heard, is Lorenzo Marinuzzi. He’s the global chair of Morrison Foerster’s Business Restructuring and Insolvency group. Lorenzo, thank you very much for sitting with us and chatting. I really appreciate it.
Lorenzo Marinuzzi:
Thanks for inviting me.
Justin Bernbrock:
So, before diving into the topic of the interview, which is retail bankruptcies, then and now, I think it might be helpful to hear your background and how you came to be where you are now.
Lorenzo Marinuzzi:
Sure. So, I’ve been doing this for 30 years. I graduated from Fordham Law in 1996. Before that, I summered at what was then known as a boutique restructuring firm, where the bread and butter was restructuring. I was attracted to subject matters in law school that had a code as a starting point, and bankruptcy was one of them, obviously. I just loved the experience of being involved in large bankruptcy cases, even as a summer associate working on the Bradley’s bankruptcy case. I stuck with it, and here I am now, 30 years later.
Justin Bernbrock:
And it’s been an impressive 30 years. I think, and I can speak for myself in this regard, that bankruptcy lawyers never like to be pigeonholed into one industry or another. But when you look back at a bankruptcy lawyer’s career, some themes and trends stand out. In particular, you’ve had a lot of experience in retail cases. Was that by design? How did that come to be?
Lorenzo Marinuzzi:
It was the nature of the cases that were filing back when I started practicing as a bankruptcy lawyer, and the firm also had strong relationships with credit managers and a lot of vendors that did business with retailers. So, for example, Bradlees, Caldor, Hahne’s department stores, Kmart—there were a lot of landlords, vendors and credit providers. We naturally started doing retail case after retail case, and it just kept going. I’ve done a lot of other work outside of retail, but I’ve always had a soft spot in my heart for retail cases. They certainly have changed since I started doing them 30 years ago.
Justin Bernbrock:
Yeah. So, I want to drill down on a lot of the changes that you’ve observed because I think that there have been significant ones. If you want to dial up the time machine and think back to some of your early experiences in these types of cases and talk about what they looked like and then how things have evolved over time, I think it’d be really interesting.
Lorenzo Marinuzzi:
Sure. Happy to. Look, if you had asked me 30 years ago about a world in which you could go on this device on your desk, pick out the things you need to buy, click a button, and have them delivered the same day or the next day, I probably wouldn’t have believed you. But that’s the world we’re in now. If you go back 30 years, if you wanted to buy something, you had to get out of your house and go get it. The retail environment was very different. You didn’t have e-commerce to compete with, obviously, but everybody was in the retail business. So, you had large chains competing against other large chains, with overlapping footprints, overleveraging, merging, acquiring and creating financial distress for themselves. Back then, restructuring really was a business restructuring, as opposed to a pure balance-sheet restructuring, which is what you largely see these days.
And there’s a reason why it was very different. One, it dealt with leverage, meaning leverage over your restructuring process if you were a management team. You had the luxury of time, and I think the world was very different. Lenders in restructuring situations today are much less patient than they were 30 or 20 years ago. I think you’ve got different financial pressures and different timelines dealing with DIP loans. Go back 30 years, and there was the holiday season, which exists now, but doesn’t really exist in the same way anymore. In my experience back then, you had a business plan, and the business plan was a test for management. The big punchline was: how did they do during the holiday season? You had a business-year cycle to look back on and compare how they did versus the year before to see whether it was a company worth saving or not.
In order to get there, you had to give them time. Lenders gave companies time, and landlords were forced to give companies time because, at that time, debtors had until confirmation of a plan to decide what they were going to do with their real property leases. That meant they had a lot of time to look at the footprint, to look at the competition in geographic segments, and decide what kind of company they were going to be. Where were we going to operate? Was this store worth saving? Were there things we could do in this geographical market to make it better? That changed dramatically with the 2005 amendments to the Bankruptcy Code, which limited a debtor’s ability to decide when to assume or reject a nonresidential real property lease. It used to be unlimited; then it became a maximum of 210 days. That shifted the landscape on retail restructurings, and that’s a huge difference.
And then, I think the credit market has changed. It’s not JPMorgan Chase or Citibank that’s your lender; it’s a lot of funds buying into distressed debt. You have bank debt, you have bond debt, and it just makes it that much harder to create the runway that a traditional retailer would have needed back then to decide how to manage the company and improve company performance. Now, it’s almost purely balance-sheet restructurings or liquidations.
Justin Bernbrock:
So, diving in there, Lorenzo, something you said occurred to me—or, rather, sparked a thought I had—particularly with the BAPCPA amendments and the longer timelines for landlords. It got me thinking about how, and this is a general observation that perhaps you see more in retail cases, there is increased pressure on shortening case lengths. I’m wondering if you have general or specific observations about how the participation of funds and nontraditional lenders has led to pressures to shorten cases, particularly in retail, and whether that has had an impact on some of the serial filings that we’ve seen.
Lorenzo Marinuzzi:
Oh, sure. I think the landscape has changed drastically from a finance perspective. You have distressed funds that are invested in bonds and have a lot of say, and control in many cases, over the timeline of a restructuring. I think they look at the prospects of a restructuring very differently, in particular where they’re not par holders. They bought debt at a discount, and they’re looking at a return on investment. The success of the company, in many cases, is a nice bonus, but I think they look at it as: how do I get out of this restructuring? The more time I spend, the more risk I introduce to my investment. If we’re going to wind up selling our holdings, we may as well do our balance-sheet restructuring now and ensure that we come out of the process with a senior position that controls how and when the equity position we wind up with gets sold.
It has much less to do with repairing a business than it does with getting rid of junior debt. They don’t necessarily view themselves as partners with the business or as supporting the business. And maybe it’s unfair to color them all this way, but they look at it as an investment. They’re looking at it from the perspective of what the assets are worth, as opposed to necessarily what the business is worth. I think that just changes things. You don’t see 18-month retail restructurings anymore. You see very short three-, six- or nine-month restructurings in the retail space, and in many cases, they go straight into liquidation. They’re not really restructurings; they’re simply, how do we liquidate the assets?
Justin Bernbrock:
So, one of the recent cases that you and I are actually both working on together is the Saks Global case, one of the more significant retail filings in the last three or four years. Of course, I am acting on behalf of several vendors, and you are lead counsel to the official committee of unsecured creditors. One of the really interesting things in this high-end fashion world is the tug and pull between vendors who are owed, in some instances, over $100 million and funded-debt lenders who have also invested hundreds of millions of dollars. That isn’t a typical dynamic in the average retail case. So, I’d like to get your thoughts on this high-end luxury retail world, where vendors may have an outsized leverage position.
Lorenzo Marinuzzi:
I think Saks and Neiman are very different retailers than so many others, in particular lots of discount retailers that have washed through bankruptcy, like Bradlees, Caldor and Fortunoff. There’s a brand there in Saks, and there’s value in that brand. There’s a brand there in Neiman, and there’s value in that brand. I think this case was different because, when you think about the brands that are selling merchandise through Saks and Neiman, they draw customers, like some of your clients. For example, Chanel, Louis Vuitton, Gucci, Zegna and other brands—people are loyal to the brands. They buy the brands. But now all those brands have their own stores and their own footprint. So, in many respects, they are much less reliant on a third-party retailer like Saks or Neiman Marcus to move their merchandise to their customers. Combined with e-commerce, where they run their own platforms and you can buy things online, it has created a shift in leverage and dynamics. Back in the day, a lot of companies that sold their goods to the consumer relied on the reseller.
Now there is less reliance on that, and that gives them optionality. And as we know in Saks, many of the goods that are sold in the stores are on concession or on consignment. You could walk into an argument about who actually has the cash, and we can talk more about that in a little bit. But the lenders in that situation, in Saks and Neiman, know there are options for some of these brands. They don’t have to ship to Saks, and they don’t have to ship to Neiman. They would like to, but they’re not going to shut their doors because Saks shuts its doors. That changed the dynamics of negotiations with the lenders, who realized that, were it not for these brands that people walk into the stores expecting to find, this is just another retailer.
What made it special was the brands, and that created some unique opportunities to negotiate with lenders and with the company, and to obtain, for the benefit of unsecured creditors and vendors that were going to support the company, certain things that you just don’t see outside of this particular case in this retail space. For example, the lenders naturally wanted to have an option. They wanted to see how well the business was performing over the first month and a half to two months of the case before deciding whether to commit financing. They’ll tell a different story, obviously, but the risk existed, and we saw it on this side: vendors would ship and provide credit or goods, the business plan would come out at some point in the middle of March, and the lenders would say, well, you know what? This is just not worth us throwing more money into.
So, we’re going to pull the plug and liquidate. Then we’re going to have a big battle over whether, in fact, the concession sellers have done the things they need to do to make sure the cash is preserved for them; the consignment vendors, the same thing; and we’ll wind up liquidating it. Think back to the Toys R Us case a few years ago, just before the pandemic. It was obviously a different case, but the post-petition trade didn’t get paid. Vendors looking at a billion-dollar top-line DIP in Toys R Us—and I recall it was a billion dollars, which was a lot of money back then—said, we’re safe to ship. People went ahead and shipped, and then all of a sudden management said, we’re shutting down. This was after the store shelves were full of merchandise for the holidays, which left a bitter taste in a lot of people’s mouths and led to a bunch of lawsuits about what the lenders and the company knew and when.
People remembered that experience. Even though it wasn’t the same brands shipping, many of the lawyers who were involved representing some of these vendors in Toys R Us are also representing some of the vendors here, and obviously they weren’t going to put themselves or their clients in a position where they would provide post-petition benefits to the company and be at risk. So, we negotiated as part of the DIP order—and by “we,” I mean the committee, as well as lots of important members, like your client—benefits. That included something you don’t see: the new-money DIP loans and the new-money roll-up loans in Saks were subordinated to the post-petition obligations to concession and consignment vendors arising from post-petition sales. That meant the lenders had to give up the argument, on a post-petition basis, that the cash collected by the company was subject to their collateral or their liens.
Also, there was an agreement that concession and consignment vendors had valid and perfected rights for goods that were in the global debtors’ or Saks’s possession as of the petition date, which again meant the lenders had to give up the argument that the cash the company was holding as of the bankruptcy filing was allocable to some of these concession or consignment vendors. That was a big give on the lenders’ part because, if the wheels fell off this thing in late March, they had effectively given up the right to argue that the cash belonged to them and given the vendors the right to say the cash belonged to them. That was a big change in dynamics. I think when that happened, it changed the entire complexion of the case because it forced the lenders to become partners with the vendors and the company, as opposed to allowing the lenders to have the option of deciding whether they wanted to kick in the last part of the DIP financing, which only became payable when they signed off on the business plan.
On top of that, as part of the discussion on the DIP financing, we were also discussing with the company and with the lenders the payment of critical-vendor dollars and other dollars that were earmarked to pay pre-petition claims. We insisted, again, because we didn’t want the lenders to have a free option, that a big chunk of that money had to be spent within a short period of time after entry of the final DIP order, as part of the DIP. That ensured that the money flowed out. When the money flowed out, the trade support continued. It actually got better, and ultimately it put us in the position where we are this week, where it looks like we’re about to emerge from bankruptcy.
Justin Bernbrock:
Yeah. And a phenomenal outcome, I think, because I don’t know that many who were observing on the periphery realized how close things came to just not working in this case. So, it was a really remarkable outcome. Shifting gears a bit, historically there’s been a block of landlords who have always had, particularly in retail cases with heavy brick-and-mortar footprints, an outsized—I’m sure they wouldn’t characterize it that way—but meaningful position in these cases. We’re seeing that, I think it’s fair to say, taper off to some extent. What’s been your view or observation of the role landlords play in these cases?
Lorenzo Marinuzzi:
So, I think it depends on the case and the footprint. In so many retail bankruptcies, when you think of committee dynamics, you have a seven-person committee and more than half of the members are landlords. Here, it was a very different dynamic. The brands dominated by committee count. There were 11 members, and most of them were brands. Then you had an indenture trustee for some notes, and then you had one landlord, and it wasn’t even the debtor’s largest landlord. I think the landlords are getting hammered in these bankruptcies. There’s just not the same need as there was years ago to have stores. A lot of things are shifting to e-commerce, and I think landlords have been struggling with what to do with the locations they have.
They have shown some creativity, and we saw that in this case with some credit support and financial arrangements that some of the largest landlords agreed to with Saks to provide liquidity. It’s sort of an “I’m helping one of my tenants help themselves” kind of partnership, and that resulted in renegotiation of some of these settlements with GGP and with Simon Properties at the conclusion of the Saks case. I think they see these large retailers as partners. I don’t envy having to own nonresidential real property these days because it’s really hard to find and keep tenants. We see shrinkage, and we see a lot of distress in that space. For many of these landlords that own these properties, a lot of them just get shut down. A lot of them just disappear, close down and they have to repurpose them.
You see that in the American mall. A lot of anchor tenants that have shut down over the years have created entertainment spaces, right? They’ll put a movie theater in there, laser tag, another restaurant—something else to try to replace the stores that went dark. It wasn’t always like that. Many years ago, landlords had a lot of leverage. Look, they had so much leverage that they got Congress to enact modifications to the Bankruptcy Code to stop having to give basically free credit to bankrupt tenants by limiting the time the debtor had under Section 365 to 210 days. That was a big get for them. Over the years in these retail bankruptcies, depending on where the real estate market was, we saw the willingness or unwillingness of landlords to extend that.
I can remember in Best Products, the real estate market back then—this was 25 years ago—was a little crazy for retail space. So, there was a lot of value in the designation rights, where somebody bought the debtor’s right to assume and assign these retail leases, and they made a lot of money doing it. Fast-forward, I don’t think anybody wants to buy designation rights anymore unless they’re forced to in order to support the company. So, I think the dynamics have changed. I think you’re going to see, in very strong companies with a lot of bond and bank debt, less landlord participation or membership on the committee because the dynamics are different. In some of these other cases, I suspect when you have a liquidation, you’re going to see a lot of landlords [inaudible 00:23:14].
Justin Bernbrock:
Yeah, no, it’s been really interesting, particularly coming out of the pandemic, and the overall commercial real estate market generally has been a really interesting space to watch. So, going back to when the Saks case filed, and particularly the DIP financing, which was one of the more complicated financing packages I think we’ve seen in recent cases, there was obviously the litigation at the first-day hearing spearheaded by Amazon. When the committee was formed and you and your partners came into the case, you were able to sort out an arrangement that enabled the case to proceed. I think people would find it interesting to get a little behind-the-curtain view of the pushes and pulls in those negotiations. We’ve talked a little bit about the vendor support, which was a meaningful component of that, but what are your perspectives on how that dynamic played out?
Lorenzo Marinuzzi:
So, representing committees with diverse interests is challenging. I don’t think people understand how challenging it is unless they do it. Your job, if you’re a good committee lawyer, is to have everybody on your committee feel that their voices are being heard and their requests are being considered. When this case started, before the committee was formed, as you noted, Amazon had filed an objection to the DIP loan. The crux of the objection dealt with HoldCo II, which was the entity that effectively owned the flagship store. Around the time of the Neiman transaction and thereafter, what the company had been doing to raise liquidity was giving people liens on the flagship store after an LME transaction.
Amazon had its arrangements and made a significant financial contribution as part of what I’ll call the Saks money-raising efforts. They had rights against HoldCo II, and in the view of Amazon, the debtors violated those rights, and probably did so in order to raise financing. They granted liens to the DIP as part of the financing package. HoldCo II doesn’t really have operations, and Amazon’s argument was: why should they be on the hook for all of this DIP financing, which is being used to support store operations that have nothing to do with HoldCo II? They were overruled, but there was still merit to their argument. When we went to the final hearing, we strongly considered the Amazon objection and determined that there was leverage in trying to convince the DIP lenders—not because Amazon wanted it, but because we thought it was the right result for the case.
They should look to other assets before trying to realize repayment of the DIP from HoldCo II and from avoidance actions. Ultimately, they agreed to that, again because of the dynamics we talked about before that gave members of the committee a lot of leverage over the process that lenders don’t usually see. Amazon, I think, ultimately was happy with the way the case turned out. Their distribution is going to be subject to the litigation and the settlement. We’ll talk about that in a second as well. But they were heard, and I think the committee strongly considered the objections they raised. To be fair, I think the committee at various points used the threat of Amazon being active in the case, because Amazon, as we all know, is very well funded, as a basis for trying to get something else from the company and from the lenders during the case.
As part of the settlement discussions that ultimately resulted in the trust that was created to pursue claims against the people that may not have acted the way they should have acted prior to the bankruptcy filing, there was the risk and the threat that Amazon would object to the plan. Amazon would make the argument that there was additional value at HoldCo II that would support a separate distribution on its unsecured claim at HoldCo II. But in exchange for the ultimate global settlement that we arrived at, Amazon was going to stand down on its objection. Whether Amazon was going to go ahead and do that or not, only Amazon knows, but I think everybody perceived it as a real threat. And look, we’re not shy about that. We think it’s a great thing, and we utilized that threat to the advantage of the committee.
Justin Bernbrock:
Yeah, no, there were definitely some tense times throughout the process, but I think it was interesting how it all played out. So, the other end of the bookend, which you mentioned, is the global settlement that was reached with the committee and the formation of the litigation trust. Talk a little bit about how that came together and what the various parties’ concerns and perspectives were in getting to that deal.
Lorenzo Marinuzzi:
So, I think there was a lot of alignment between the lender side and the unsecured-creditor side on wanting to preserve and pursue claims against third parties. The bankruptcy followed the Neiman transaction. Saks acquired Neiman, and the view of the committee is that they overpaid significantly for Neiman at a time when they were insolvent. The writing was on the wall pretty quickly that this combination was doomed to fail, and it was a pattern of what the committee believes was malfeasance by parties who raised money, strung along their trade credit and promised that money was coming but never sent it out. Obviously, a lot of people on the committee side remember, because it was very recent, being mistreated by company management and not getting paid. That didn’t sit well with them, and we investigated and determined that there were claims that should be preserved.
The company-appointed special committee that investigated with separate counsel also determined that claims should be preserved, and the lenders, who are the new owners of the company on the effective date, also wanted to preserve claims against third parties, including prior management. The company in all of these cases is always fighting to get releases for everybody, and in particular, I appreciate the sensitivity that prior management appointed the professionals or selected the professionals to represent the company. There’s naturally, and I don’t think it’s a bad thing, a loyalty to those people who put them in their positions. But here you had, on both ends, the banks and the committee determined that these claims were going to be preserved. From the committee’s perspective, they wanted to keep as many people on the hook, or preserve as many claims, as possible. By the way, the fact that people didn’t get releases doesn’t mean that they did bad things that are culpable. It simply means that we don’t know, because we just don’t know whether they did things that should be prosecuted, and further investigation is required to get there.
On the lender side, they’re not managing this company, so they’re going to rely on the existing management team. Understandably, that means a lot of these people were hands off. And I think when you think about the committee, you have a number of members of the committee that are continuing to do business with this company and are really rooting for it to succeed. We had the PBGC, we had the union and we had a number of trade creditors with ongoing relationships. There’s a balance between trying to keep people on the hook to look at prior conduct to see if there’s anything that can be recovered on account of unsecured claims, versus wanting to make sure the company is managed and run well in the future so that you’re not faced with the situation again.
So, you’re not fighting tooth and nail to preserve claims against people who are necessary to operate the company going forward because you’re kind of hurting yourself on one side to benefit yourself on the other. That changed the dynamics a little bit of how hard the committee was going to fight with the company—or with the lenders, I should say—about preserving claims against certain parties. But there was agreement that prior management—people who orchestrated the Neiman Marcus transaction, people who got personal loans from Saks that were forgiven on the eve of bankruptcy and people who got certain bonuses before the bankruptcy filing—should all have those claims preserved. And we put together a trust.
We heavily negotiated how that trust would work and how it would be funded. It’s going to be funded with $20 million of cash, which sounds like a lot of money, but there are a lot of claims to be investigated here. Then there is a sharing mechanism that reflected the fact that the DIP here is impaired. The post-petition DIP financing is not getting paid in full, which usually means the DIP lenders are entitled to every dollar that comes in. Even though we have marshaling provisions in the DIP order that require them to look elsewhere before going after unencumbered assets, including avoidance-action claims, they will say: “Hey, you know what? We’re not getting paid, everybody knows that, and we should be able to look to these avoidance actions.”
But because they realized that getting to a settlement with the committee, which includes a lot of people they’re going to rely on as business partners coming out of bankruptcy, made more sense than fighting over confirmation and spending more money litigating, they put that money into a trust to go after people that we have a mutual interest in ensuring, to the extent they did something wrong, pay for it. We agreed on a sharing mechanism. We agreed that they would get their $20 million of funding back, plus $10 million for the money they’re putting up, and then we would share 50/50 up to a threshold. After that, the splits would be in their favor. Again, recognizing—“they” being the lenders—that the DIP is not repaid, and this, in many respects, is a gift from the lenders to be done with the bankruptcy case.
Justin Bernbrock:
Yeah. And so, going back to what we talked about a few moments ago, is this part of the trade-off in shortening case length, where you’re, in a sense, minimizing or mitigating the administrative burn to the point of impairing a DIP claim? Do you think that is some of the pressure at play?
Lorenzo Marinuzzi:
Exactly. I think bankruptcy is very expensive, and the lenders pay for it. So, when you represent a committee, you need to understand that time is money. There’s a fine line between being a flamethrower—“pay me or else”—and conducting a real analysis of what the committee stands to gain if it successfully prosecutes the challenges and claims it intends to bring, versus the cost of getting there and the impact that has on the case. And I think, if you recall, the mindset of this committee is, “We want this company to come out of bankruptcy as a strong and healthy company.” That doesn’t exactly gel with, “We’re going to go and litigate this thing until we get a final decision from a judge, even if it means the DIP blows up.” Having said that, you’re a fiduciary as a committee, and you conduct an investigation to determine what claims exist.
We identified claims against the lenders regarding the Neiman transaction and liens that we thought were avoidable. We communicated that to the lenders. The lenders, of course, as they always do, said, you don’t really have a good claim. Nevertheless, I think everybody sat down and said, we could spend tens of millions of dollars litigating to determine whether these liens are valid, and what we get at the end of the day, unless we are successful in unwinding the roll-up of the DIP, is probably not better than what we would get if we just sat down and structured a settlement, which is what we did.
Justin Bernbrock:
So, climbing back up to a more macro view of the retail landscape, you talked a bit at the outset about the implication of e-commerce on brick-and-mortar retail. But do you think there has been an overall mindset or paradigm shift with respect to retail cases such that… is a going-concern reorganization still the goal? Or should professionals, investors and other players in the restructuring industry generally be thinking about the ultimate exit for many of these retail companies?
Lorenzo Marinuzzi:
That’s a tough question to answer generally because I think every situation is different. You have to look at how and why the company is in distress. You have to look at the strength of the brand, the size of the footprint. Is every retail brand worth saving? No. And I can’t even count the brands that don’t exist anymore that went through bankruptcy and just disappeared. But some do. Saks is one. Neiman is one. Bergdorf is another, all related, obviously. There’s value in preserving the brand and preserving the relationships that brand has with Chanel and others, because they’re unique brands. A retailer that sells no-name goods manufactured overseas, where nobody is really focused on the quality—you can buy a white, medium T-shirt online—you don’t need to go to a store and try it on. I think the nature of the goods you’re selling is going to determine whether foot traffic is important and whether people are going to come into the store.
I think when you’re buying high-end luxury goods, like a bag or a piece of jewelry, most people want to see it, and most people want to deal with a personal [inaudible 00:37:24]. The people who like it really like it, and they like it enough to show up in the store. If it’s a generic plain product that could be sold at any online retailer and happens to have some brick-and-mortar locations, I just don’t know that you need the brick-and-mortar locations.
Justin Bernbrock:
So, against that backdrop, what can unsecured creditors to large retailers do to best protect themselves?
Lorenzo Marinuzzi:
So, I think we saw the movement to concession and consignment that’s been happening over the past several years. If you are a big enough brand, it’s a lot easier to exert that kind of leverage to get those arrangements in place. Lenders, and in particular ABL lenders, like to think that the inventory is something they can rely on in a meltdown. In a concession scenario, that’s not the case if it’s a proper concession. We saw the evolution from selling on credit, which is how all these cases used to be, to consignment, which is how they evolved 10 or 15 years ago. Most of those consignments were unperfected. They didn’t do what they were required to do under the UCC, and they found out the hard way that the goods and the proceeds of the goods didn’t belong to them. Then we went into concessions, and we saw that more and more.
I think concessions with strong brands that are recognized household brands will probably continue. There may be more. And I think if you are the kind of brand that has your own store footprint, where you sell directly to the consumer yourself, whether it’s brick and mortar or e-commerce, it gives you more leverage to demand those kinds of arrangements. I think a good credit manager is worth what they get paid to make sure they minimize their exposure. If you are shipping to a company that is in distress, you have to understand and do your homework about maturity, debt and reporting. Know how bad the situation is. A lot of people find out way too late to do anything about it, and the 30-day invoice becomes 45 days past due. By that point, it’s a little too late.
If you are an investor, I think you’re paying very close attention to the company financials. You’re looking at the underlying asset value. You’re determining whether 10 cents on the dollar is a good price to pay for the bond that this retailer issued or the bank debt this retailer is subject to. I just think it’s the evolution. And I think if you are doing business in the retail space, recognizing how retail has been suffering, you have to be very careful. I think your clients, aided, I’m sure, by you, were very smart in how to protect themselves, but not everybody is like that.
Justin Bernbrock:
Right. So, looking forward, what trends, if any, do you see? What insight can you provide in terms of maybe not specific situations, but just overall trends?
Lorenzo Marinuzzi:
I think we’re running out of retailers that have store footprints, at least large big-box ones. So, I’m not sure how many more cases like Saks we’ll see. I think the cases, when they do file, are going to be shorter and shorter, with very short DIPs. There will be a lot of pressure to come to a decision on what a footprint should look like. You’re not going to get a six-month DIP or a nine-month DIP; you’re going to get a very short DIP. A lot of those cases, I think, are going to be resolved very similarly to how this one was resolved, to the extent that a trust gets created with claims to go after people against whom actions may lie, with some funding—probably minimal funding—to go after them. But I’m not sure you’re going to see a case like Saks for a while.
Justin Bernbrock:
I certainly hope that’s the case that we don’t see a Saks case for a while.
Lorenzo Marinuzzi:
I’m with you.
Justin Bernbrock:
But yeah, I think that’s generally right. The landscape is just running out of a number of these. Well, that’s the balance of the interview. We do like to ask all of our guests, assuming no limitations, if you weren’t a restructuring lawyer, what would you be doing?
Lorenzo Marinuzzi:
If I weren’t a restructuring lawyer, I’d probably be a restructuring financial advisor. Having done this for 30 years, I just love the negotiation. I love the role-playing. I love helping get a case to a conclusion and having a bunch of very happy committee members about the process we just went through. I really enjoy it. It’s meaningful to me. It’s rewarding. And if I weren’t a lawyer, I’d be a financial advisor looking at business plans. If I were out of law or finance completely, I’d probably be running an animal shelter.
Justin Bernbrock:
Oh, very cool. Very cool. Well, Lorenzo, again, thank you very, very much. It’s been very interesting, and hopefully folks take a lot out of this.
Lorenzo Marinuzzi:
I hope so. Thanks for the opportunity. Always great to chat, and be well.
Justin Bernbrock:
All right. Take care.
Lorenzo Marinuzzi:
You too.
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