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99 Cents Only Stores

0267 El Centro El Centro, CA 2
INDUSTRY
Real Estate
Inventory
TIMELINE
April 5 - June 28, 2024
PROCESS TYPE
IOI, APA, Online Auction
GEOGRAPHY
AZ, CA, NV, TX: Retail & Land
Overview

Hilco Global (Hilco) was engaged by 99 Cents Only Stores (99 Cents) in its Chapter 11 bankruptcy case to run a coordinated monetization process for its real estate (owned and leased) and inventory. By utilizing Hilco, one of the only firms capable of running a coordinated process across inventory and real estate asset classes, 99 Cents and its advisors ensured that its ABL and Term Lenders were paid in full despite a limited DIP budget, complex creditor structure, and truncated timeframe. In total, Hilco:

  • Monetized $245 million of retail inventory, significantly exceeding appraised and modeled recoveries
  • Generated $168.5 million in real estate proceeds from 44 owned properties and the sale of (200+) leases within just 75 days.
Challenge

99 Cents Only Stores, a prominent discount retailer that originated in 1982 in Los Angeles, California, expanded into Arizona, Texas and Nevada, eventually managing 41 owned retail locations, 333 leased stores and three (3) vacant development parcels. However, due to rising competition, increased labor costs and logistical challenges—exacerbated by the lingering effects of the COVID-19 pandemic—the Company was forced into liquidating under Chapter 11 bankruptcy.

Hilco was retained shortly after the filing to manage the sale of all assets, including real estate, inventory and FF&E (fixtures, furniture and equipment). A key complexity was the involvement of multiple lenders, including a Debtor-in-Possession (DIP) lender, creating difficulties with centralized decision making. Additionally, the involvement of an existing Board of Directors and an Unsecured Creditors Committee required frequent updates, adding to the intricacy of the process.

Time constraints imposed by the bankruptcy court, combined with the perishability of a portion of the Company’s grocery-related inventory, demanded swift action. The scattered inventory—stored in transit, in leased warehouses and within retail locations—further complicated the process. To successfully execute this sale, it was vital that Hilco implemented a fast-paced, nationwide strategy across multiple workstreams to preserve asset value.

Integrated Process

To be successful, Hilco conducted Going out of Business (GOB) sales at all locations while simultaneously launching a complex real estate process that valued 44 owned properties and subsequently marketed and sold both owned and leased real estate assets. The integrated approach provided many benefits, chief amongst them:

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  • Coordinated Work-Streams: The GOB sale utilized a complex sales process whereby stores closed in approximately four (4) separate waves to mitigate expenses.Determining which stores were in each wave was fluid. The real estate team was involved in those discussions, providing the lead time to close all lease sales within the proper noticing periods to truly maximize value from buyers. Some of these strategic buyers mandated the integrity of the FF&E in the stores as a predicate to coming to terms on a real estate transaction. Hilco not only accommodated these requests, but also used the opportunity to drive further FF&E value.
  • FF&E Coordination: Where parties had no interest in the FF&E in stores, Hilco’s real estate team was able to communicate that to the GOB team to ensure fixtures could be monetized in the normal course through the stores.
Solution & Strategy

Working closely with the Debtor, Hilco quickly established a chain of command by deploying regional supervisors to coordinate with store managers and staff to initiate GOB sales at nearly 375 locations. Throughout this process, Hilco strategically closed underperforming stores and redirected in-transit inventory to better performing locations, managing payroll, staffing, security and theft risks to maximize inventory value. High shrink stores were closed early to mitigate loss.

As the liquidation progressed, Hilco seamlessly transitioned to selling FF&E, including shelving, racking, coolers and registers. During the sale, Hilco coordinated efforts to preserve real estate value while simultaneously negotiating with buyers. In some cases, FF&E remained in place to accommodate buyers’ requests, adding significant value to the sale.

The real estate team completed valuations of the 44 owned properties and expedited review of leased locations in just two (2) weeks, conducting site visits and reviewing extensive due diligence materials. Following this, Hilco launched a targeted marketing campaign, leveraging local, regional and national channels including print, digital, social media and direct outreach to over 4,700 grocers, alternative users, investors and developers, as well as landlords (for the leased locations). These efforts culminated in three key phases:

  1. Indication of Interest (IOI): The real estate team gauged general interest from potential buyers.
  2. Binding Asset Purchase Agreements (APA): Formal offers were submitted with non-refundable 10% deposits.
  3. Online Auction: This competitive process determined the highest and best offers for both owned and leased locations.
Real Estate Metrics

Hilco’s nationwide marketing efforts delivered outstanding results, generating significant interest and achieving higher-than-expected recovery for the estate:

  • Total IOIs Received: 369 across individual sites, submitted by 130 unique parties
  • Total APAs Received: 181 offers, from 77 submitting parties by the bid deadline
  • Online Auction Qualified Bidders: 63 (owned properties), 17 (leased properties)
  • Successful Bidders Designated: 27
  • Total Marketing Period: 45 days
  • Total Closing Time: 30 days on average
Recovery
  • $168,500,000 from the sale of owned and leased assets
  • Managed sale of $245,000,000 in retail inventory, significantly exceeding appraised and modeled recoveries
Conclusion

The combined expertise of Hilco proved crucial in navigating the complexities of the 99 Cents Only Stores’ Chapter 11 bankruptcy. Through their collaborative approach and ability to rapidly implement a multi-faceted strategy, Hilco effectively managed the disposition of real estate, leases, inventory and FF&E. Its aggressive nationwide marketing efforts, strategic asset management and swift response to time-sensitive challenges resulted in the successful sale of all owned and leased properties. Exceeding client expectations, the joint efforts of Hilco generated proceeds sufficient to cover the 99 Cents secured ABL and Term Lenders in full, solidifying its reputation as an industry leader in high-stakes, large-scale transactions.

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