WHEN FAST ACTION AND DETAILED PLANNING SAVE A RETAILER, SATISFY CREDITORS—AND PROTECT JOBS

Overview

  • Tuesday Morning, an exclusively brick-and-mortar retailer with no online presence, saw its store revenues plunge to zero when the COVID-19 pandemic forced the closure of its roughly 700 locations, leading to a Chapter 11 filing
  • The AlixPartners turnaround team developed an effective plan to ensure adequate liquidity, rationalize the store footprint, and preserve long-term value
  • Tuesday Morning emerged from Chapter 11 with its creditors paid in full, its equity reinstated, and more than 7,000 jobs preserved—an outcome virtually unprecedented in retail bankruptcies

The Tuesday Morning case demonstrates how a comprehensive financial and operational approach to restructuring can lay the foundation for business success.

THE SITUATION: AS LOCKDOWN HITS AND STORES CLOSE, REVENUES EVAPORATE

Founded in the 1970s, off-price retailer Tuesday Morning had built a billion-dollar business selling high-quality merchandise at discount prices at its approximately 700 U.S. outlets. But the business model was impossible to execute when the COVID-19 pandemic required the company to close its physical shopping locations.

Tuesday Morning’s capital structure consisted solely of a revolving credit line secured by its store inventories. Prior to filing its Chapter 11 petition in May, Tuesday Morning drew down the line by approximately $90 million to meet payroll and other operational expenses. But with no cash coming in the door, the company was unable to satisfy trade claims and to pay store rents, leaving it with unsecured liabilities totaling about $110 million.

Tuesday Morning was able to rapidly pay down its credit balance after stores reopened and sales soared, fueling high expectations for recovery among creditors and equity investors. But as the crucial fall selling season approached, the company’s comeback was imperiled by low inventory levels and supply-chain bottlenecks as well as underperforming stores.

THE APPROACH: SAFEGUARD CASH, MANAGE TRADE RELATIONSHIPS, SECURE FINANCING

Tuesday Morning engaged advisors including AlixPartners shortly before closing all its store locations and distribution centers. The turnaround team made several high-impact moves to resolve the case:

  • Projected cash flow weekly to proactively manage and shore up liquidity, maintain compliance with debt covenants, and monitor future cash needs
  • Managed relationships and communications with trade vendors to procure fresh inventory and keep the turnaround and court case on track
  • Worked with the supply chain function to develop strategies to re-inflate inventory levels and procure product for the holiday season
  • Worked with landlords to negotiate abatements, reduce rents, and reject leases tied to non-core facilities. Those moves enabled the company to rationalize its store footprint and finalize the go-forward store base
  • Developed long-term forecasts and worked with potential investors to arrange asset-backed financing, subordinated debt, and a backstopped equity rights offering that funded payments to creditors and provided liquidity for operations

THE SOLUTION: A BUSINESS—AND AN EMPLOYER—SET UP TO SUCCEED

Tuesday Morning’s plan was ultimately confirmed after months of negotiations. The improved financial outlook enabled Tuesday Morning to raise exit financing, repay unsecured creditors in full, and reinstate equity with minimal dilution. When it really mattered, the plan created significant value and preserved thousands of jobs.

when it really matters alixpartners 2019

WHEN IT REALLY MATTERS: EBITDA IMPROVEMENT IN SEVEN MONTHS—AND A HIGHLY PROFITABLE EXIT IN FIVE YEARS

The performance improvement achieved at our client’s newly acquired portfolio company—an $11 million increase in annual EBITDA in just seven months—speaks volumes about the importance of implementation planning early in the investment game.

  • The outcomes of this case show how AlixPartners’ approach is distinctive in other respects as well. Specifically:
  • We support our PE clients throughout all stages of the investment lifecycle, including pre-transaction, pre-close planning, value creation, and achievement of full potential. 
  • We help clients with crisis management in all stages of the lifecycle—such as determining how to turn around a target that’s in bankruptcy or getting a struggling transformation program back on track at a newly acquired business.
  • We identify, drive, and help secure sustainable improvements in portfolio companies’ performance.
  • We work side-by-side with PE sponsors and their portfolio companies’ management teams to ensure that deals deliver the intended value. 

Our unique approach enabled this client to quickly restore their distressed portfolio company’s EBITDA performance to levels that attracted a buyer willing to pay a handsome price—one that nearly doubled the investment value at exit.

The performance improvement achieved at our client’s newly acquired portfolio company—an $11 million increase in annual EBITDA in just seven months—speaks volumes about the importance of implementation planning early in the investment game.

  • The outcomes of this case show how AlixPartners’ approach is distinctive in other respects as well. Specifically:
  • We support our PE clients throughout all stages of the investment lifecycle, including pre-transaction, pre-close planning, value creation, and achievement of full potential. 
  • We help clients with crisis management in all stages of the lifecycle—such as determining how to turn around a target that’s in bankruptcy or getting a struggling transformation program back on track at a newly acquired business.
  • We identify, drive, and help secure sustainable improvements in portfolio companies’ performance.
  • We work side-by-side with PE sponsors and their portfolio companies’ management teams to ensure that deals deliver the intended value. 

Our unique approach enabled this client to quickly restore their distressed portfolio company’s EBITDA performance to levels that attracted a buyer willing to pay a handsome price—one that nearly doubled the investment value at exit.

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When it really matters in the life of a company, AlixPartners works side by side with our clients.