Party City Holdco Inc. filed for bankruptcy, weighed down by a confluence of factors including the pandemic and changing consumer behavior.
The Woodcliff Lake, N.J.-based company filed for chapter 11 on Tuesday with a deal with creditors holding roughly 70% of over $900 million in senior secured first-lien notes. The creditors agreed to support an expedited restructuring and to convert their debt to equity.
The restructuring will help Party City reduce its debt load. The company plans to exit bankruptcy within four months, according to court papers.
Party City’s earnings have suffered from store closures and smaller social events since the Covid-19 pandemic. The party-goods seller was also under pressure from the increasing cost of goods and labor as well as weaker consumer demand amid high inflation.
The store closures in 2020 cost the company hundreds of millions in lost earnings and prevented it from investing to upgrade some stores, according to a court filing made by David Orlofsky, the company’s chief restructuring officer. The pandemic has also led to changing consumer habits such as smaller gatherings that have depressed demand for its products, said Mr. Orlofsky.
U.S. retail sales declined in December as consumers cut back on spending at the height of the holiday season.
Supply chain disruptions, higher cost of goods, shortages of both helium for its balloons and for labor have hurt the company’s bottom line, Mr. Orlofsky said. He said the company has been unable to fully offset the elevated cost of goods by increasing prices for shoppers.
The planned restructuring through chapter 11 will allow the company to focus on long-term growth initiatives, Mr. Orlofsky said.
Party City has lined up $150 million in debtor-in-possession financing from its secured noteholders to finance its bankruptcy.
The company is evaluating its store footprint, including identifying underperforming stores, with the assistance of real-estate adviser A&G Realty Partners LLC. Party City has so far closed 28 stores, according to Mr. Orlofsky.
The Wall Street Journal earlier this month reported that Party City was preparing to file for bankruptcy amid dwindling cash and falling sales.
The company said that its international units, its Party City franchise stores and its Anagram foil-balloons business aren’t part of the chapter 11 proceedings.
Party City has nearly $1.45 billion in debt, including over $900 million in first-lien notes, according to court papers.
The company had some success reducing its liabilities through debt swaps in 2020, exchanging over $700 million in bonds for $241 million in new notes with longer maturities, according to Mr. Orlofsky.
The store closures in 2020, however, cost the company $174 million in earnings before interest, taxes, depreciation and amortization.
Party City, founded in 1947 as an importer of party goods in New York City, grew to a chain with 823 stores and went public in 2015, acquiring balloon suppliers along the way including Anagram International.
Write to Soma Biswas at [email protected] and Colin Kellaher at [email protected]
