Party City files for Chapter 11 protection

April 2023 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

April 2023 Issue

Retailer Party City has filed for Chapter 11 bankruptcy protection in a bid to restructure its heavy debt load and keep its doors open after supply chain woes, rising inflation and a consumer slowdown dramatically impacted sales.

The company, as well as some of its domestic subsidiaries, filed voluntary Chapter 11 petitions for relief in the US Bankruptcy Court for the Southern District of Texas in January. The company’s subsidiaries outside of the US, its Party City franchise stores and its Anagram business are not part of the Chapter 11 proceedings and will continue as core components of the Party City Holdco Inc enterprise. The restructuring is expected to be completed in the second quarter of 2023.

The company, the largest party goods and Halloween specialty retail chain in the US, has secured a commitment from its senior secured first lien creditors for $150m in debtor-in-possession (DIP) financing. Subject to court approval, this DIP financing will provide liquidity to support continued operations during the process across the company’s retail and consumer products divisions while maintaining momentum on its transformation.

Party City’s more than 800 stores will remain open during the bankruptcy process. The company says it will continue to advance its key initiatives underway, such as converting stores to next-generation prototypes, evolving Halloween City pop-up stores, building out its online shopping experience, establishing localised marketplaces and delivering more compelling assortments and innovation for customers.

In recent years, the company has closed 28 locations and is evaluating others to determine if they warrant continued investment. In November, Party City reported a 1 percent decline in total third quarter sales with same-store revenues down 3.6 percent. The chain’s competitors were up 11.2 percent compared to the third quarter in 2019. Competition has been at the heart of Party City’s recent difficulties, with big-box chains and online retailers significantly increasing their focus on party supplies and special events merchandise. The coronavirus pandemic also had a lasting effect on the company’s business, with rising costs during the pandemic and a helium shortage impacting its highly-crucial balloon business.

Between 2017 and 2021, the company’s sales dropped 8 percent to $2.2bn. The company projected sales to remain flat in 2022. It also lost money every year between 2019 and 2021 and said it was on track to lose up to $199m in 2022.

“In the face of pandemic headwinds, a global supply chain crisis, and other macroeconomic challenges that have faced our industry, we have made significant strides in PCHI’s ongoing transformation – establishing a solid foundation for long-term growth and continued success as the market leader in the celebrations space,” said Brad Weston, chief executive of Party City HoldCo. “Today’s action to strengthen PCHI’s balance sheet will bolster our ability to further advance our strategic priorities and continue to innovate and elevate the customer experience. As we take this important step to put our business on stronger financial footing for the future, we are as committed as ever to inspiring joy by making it easy for our customers to create unforgettable memories. We appreciate the commitment of our team members and the continued support of our partners as we further enhance our position as the ‘go to’ one-stop-shop for celebrating life’s special moments.”

In November, Mr Weston was also upbeat about the retailer’s next-gen stores (primarily remodels) and its omnichannel capabilities. “We opened 15 next-gen stores in Q3, totalling 174 next-gen stores as of the end of the quarter,” said Mr Weston. “These stores continue to average a mid-single-digit sales increase versus control stores with a run rate that delivers a payback period on each store of less than 24 months on average.”

Richard Summerfield