Hudson’s Bay waiting for court order to liquidate stores

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Hudson’s Bay is still trying to get a court order that will allow it to start liquidating its outlets, but a key real estate partner says it is disappointed by how the country’s oldest department store is looking to restructure itself.

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RioCan Real Estate Investment Trust, one of Canada’s largest REITs, and Hudson’s Bay are part of a joint venture that runs several HBC stores in prime locations.

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Hudson’s Bay has asked an Ontario court to temporarily exempt it from making payments linked to the joint venture as it looks to regain financial stability, but RioCan on Tuesday said it was “essential that any restructuring steps are on fair and balanced terms.” 

RioCan also said it will “pursue all available business and legal avenues,” and will leverage its “leasing and development capabilities to achieve the best possible outcome” for the properties in the joint venture. 

Almost two weeks after seeking protection from its creditors, Hudson’s Bay’s lawyers returned to court on Monday hoping to get an order that would continue to protect it from its creditors until mid-June and allow it to start liquidating its outlets.

If its proposal is approved by the court without any changes, it will be able to start selling its inventory, furniture and equipment from all 96 stores in Canada to help pay back creditors. The sale needs to be completed by June 15, a company filing said. Certain stores can be excluded from the liquidation process.

The court handling Hudson’s Bay’s case has not yet provided a decision.

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The closure of Hudson’s Bay, which employs about 9,360 people, would “drastically” alter the dynamics of malls nationally by removing a “major anchor and driver of customer traffic,” the company said in a statement on Friday.

As such, the company is speaking to key stakeholders, such as landlords, to create an alternative path that could preserve jobs and tenancy in retail locations. But this would also require a significant amount of capital, which the company has failed to obtain in the recent past.

“Our team has worked incredibly hard to identify a viable path forward,” Hudson’s Bay chief executive Liz Rodbell said in a statement on Friday, adding the company “would pursue every possible opportunity to secure the necessary support from key landlords and other stakeholders to save the Bay.”

On March 7, Hudson’s Bay decided to seek protection from its creditors through the Companies’ Creditors Arrangement Act. The application was granted by the court on the same day.

Judge Peter Osborne, who heard the application at the Ontario Superior Court of Justice in Toronto, said it was “hard not to have a sense of melancholy when considering” the application, according to a court filing on March 10 that explained why Hudson’s Bay’s application was accepted.

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“Hudson’s Bay is the oldest company in North America and a very prominent Canadian department store,” he said. “It was founded in 1670. Now, approximately 355 years later, it is insolvent and seeks protection from its creditors.”

Court filings seem to suggest that it has been financially suffering for a while now.

Like many other brick-and-mortar stores, the retailer, which has 80 full-line stores across the country, struggled to compete with e-commerce players, it said in the court filing.

To tackle those challenges, the company said it went private in 2020 to “reposition its operations without” public-market pressures and costs and to focus on long-term growth strategies, but it was soon impacted by pandemic-related closures, which worsened its financial challenges.

With Hudson’s Bay stores under pressure, the company decided to pursue an aggressive e-commerce strategy between 2021 and 2022, investing about $130 million in the process. In 2023 and 2024, it also cut its workforce and marketing budgets, secured $200 million in financing and appointed a new CEO to engineer a turnaround.

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The situation has worsened due to a trade war between the United States and Canada, which has compelled many investors to wait and watch instead of going through with their plans, economists say. Hudson’s Bay said this has impacted discussions with potential lenders.

“Until recently, the company was confident it could refinance all or a portion of its credit facilities and improve its liquidity position … however, the trade war … made it extremely challenging … to raise incremental financing and monetize its real estate assets,” the company said.

As a result, Hudson’s Bay said it faces “significant challenges” in paying its dues and has had to defer certain payments for “many months.” Most recently, it was unable to pay “certain critical trade creditors.”

Lawyers representing some Hudson’s Bay workers said in a filing on Saturday that they were concerned about the future of “their jobs and the payment of their pension benefits and other benefits owing to them.”

The company is also concerned that without creditor protection, certain landlords could “exercise self-help remedies,” such as locking the company out from its retail stores.

As an example, it said a landlord locked Hudson’s Bay out of a store in Sydney, N.S., on March 7, while a team of bailiffs attempted to seize merchandise from a store in Toronto’s Sherway Gardens mall.

• Email: nkarim@postmedia.com

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