| SUBSEQUENT EVENT | NOTE 11 – SUBSEQUENT EVENT Retention Awards On August 12, 2024, our Board of Directors approved one-time cash retention awards (“Retention Awards”) for four executive officers and other employees of the Company for an aggregate amount of approximately $11.8 million. The Retention Awards are subject to repayment in full in connection with voluntary termination, except in the case of a “constructive termination,” or by the Company for “cause” (as such terms are defined in the retention agreements), in each case, prior to the twelve-month or six-month anniversary of the payment date, depending on level of employee. Voluntary Petition for Reorganization In re: Big Lots, Inc., et al., Case No. 24-11967 (JKS). Documents filed on the docket of, and other information related to, the Chapter 11 Cases are available at https://cases.ra.kroll.com/biglots. Documents and other information available on such website are not part of this Quarterly Report on Form 10-Q and shall not be deemed incorporated by reference herein. We will continue to operate our business as “debtors in possession” under the jurisdiction of the Bankruptcy Court, and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. To ensure our ability to continue operating in the ordinary course of business, we filed with the Bankruptcy Court motions seeking a variety of “first day” relief, including authority to pay employee wages and benefits, and pay vendors and suppliers in the ordinary course for goods and services provided after the commencement of the Chapter 11 Cases, each of which was approved on an interim basis by the Bankruptcy Court. In addition, we filed with the Bankruptcy Court (a) a motion seeking approval of the DIP Facilities (as defined and described below), and (b) a motion seeking approval of certain procedures relating to the marketing and auction (if necessary) of all or some of the Company’s assets. At our “first day hearing” on September 10, 2024, the Bankruptcy Court approved all first day relief from the bench, pending entry of the revised forms of order. We filed the revised forms of order with the Bankruptcy Court immediately following the first day hearing, and the Bankruptcy Court entered the orders approving the first day relief on September 10-11, 2024. Effect of Chapter 11 Cases and Automatic Stay on Pre-Petition Debt Obligations Pursuant to section 362 of the Bankruptcy Code, the filing of the Bankruptcy Petitions automatically stayed most actions against us, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over our property. Subject to certain exceptions under the Bankruptcy Code, our filing of the Chapter 11 Cases also automatically stayed the filing of most legal proceedings and other actions against us or our property to recover on, collect or secure a claim arising prior to the Petition Date or to exercise control over property of our bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such claim. Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under their police and regulatory powers. The filing of the Bankruptcy Petitions constituted an event of default under the 2022 Credit Agreement and the 2024 Term Loan and accelerated our obligations under those instruments. The 2022 Credit Agreement and the 2024 Term Loan provide that, as a result of the commencement of the Chapter 11 Cases, any principal amount, together with accrued interest thereon, are immediately due and payable. As such, substantially all of the Company’s debt, with balances of approximately $556.1 million in the aggregate as of the Petition Date, is in default and accelerated. However, any efforts to enforce the payment obligations under the 2022 Credit Agreement and the 2024 Term Loan and such other instruments and agreements are automatically stayed as a result of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of the Debt Instruments and such other instruments and agreements are subject to the applicable provisions of the Bankruptcy Code. As a result of the foregoing acceleration event, all of our outstanding indebtedness has been classified as current debt in the accompanying condensed consolidated balance sheet of the Company as of August 3, 2024. Additionally, in connection with the Chapter 11 Cases, the Company has incurred, and expects to continue to incur, significant professional fees and other costs in connection with the Chapter 11 Cases. There can be no assurance that the Company’s current liquidity is sufficient to allow us to satisfy our obligations related to the Chapter 11 Cases or to pursue confirmation of a plan of reorganization. Debtor-in-Possession Financing Pursuant to that certain Senior Secured Superpriority Debtor-in-Possession Asset-Based Revolving Credit Agreement (the “DIP ABL Credit Agreement”), dated as of September 11, 2024, by and among (A) the Company, as borrower, (B) Big Lots Stores, LLC, as borrower (and, together with the Company, the “DIP Borrowers”), (C), the lenders from time to time party thereto (the “DIP ABL Lenders”), and (D) PNC Bank, National Association (“PNC”), as lead left arranger and administrative agent for the DIP ABL Lenders (in its capacity as the administrative agent, the “DIP ABL Agent”), the DIP ABL Lenders have committed to provide approximately $550 million (the “DIP ABL Commitment”) of debtor-in-possession financing in the form of a senior secured superpriority debtor-in-possession asset-based revolving credit facility (the “DIP ABL Facility”). Following entry of the interim debtor-in-posession order (“DIP order”) by the Bankruptcy Court on September 10, 2024, the DIP ABL Commitment became available to the Borrowers to draw upon. Upon entry of the final DIP order by the Bankruptcy Court, the DIP ABL Commitment will be used to repay and refinance existing commitments under the 2022 Credit Agreement. Additionally, pursuant to that certain Senior Secured Superpriority Debtor-in-Possession Term Loan Agreement (the “DIP Term Credit Agreement” and, together with the DIP ABL Credit Agreement, the “DIP Credit Agreements”), dated as of September 11, 2024, by and among (A) the DIP Borrowers, (B) the lenders from time to time party thereto (the “DIP Term Lenders” and, together with the DIP ABL Lenders, the “DIP Lenders”), and (C) 1903P Loan Agent, LLC (“GB”), as administrative agent for the DIP Term Lenders (in such capacity, the “DIP Term Agent” and, together with the DIP ABL Agent, the “DIP Agents”), the DIP Term Lenders have committed to provide approximately $157.5 million (the “DIP Term Commitment”) in debtor-in-possession financing in the form of a senior secured superpriority debtor-in-possession term loan facility (the “DIP Term Facility” and, together with the DIP ABL Facility, the “DIP Facilities”). Following entry of the interim DIP order by the Bankruptcy Court on September 10, 2024, $25 million of the DIP Term Commitment was funded and made available to the DIP Borrowers and applied in accordance with the DIP Credit Agreements. Additionally, following entry of the interim DIP order by the Bankruptcy Court, $75 million of the DIP Term Commitment was deemed funded and will be used to repay and refinance existing commitments under the 2024 Term Loan. Finally, upon entry of the final DIP order by the Bankruptcy Court, $10 million of the DIP Term Commitment will be funded and made available to the DIP Borrowers and applied in accordance with the DIP Credit Agreements, and the remainder of the DIP Term Commitment shall be deemed funded and used to repay and refinance existing commitments under the 2024 Term Loan. The Borrowers’ obligations under the DIP Facilities will be guaranteed by each subsidiary of the Company (other than Big Lots Stores, LLC). In addition, following entry and subject to the terms of the interim DIP order approving the DIP Facilities (or the final DIP order, when entered), the claims of the DIP ABL Lenders and DIP Term Lenders have been, on an interim basis, (i) entitled to superpriority administrative expense claim status and, subject to certain customary exclusions in the credit documentation, (ii) with respect to the DIP ABL Lenders, secured by (a) a perfected first priority lien on all of our property subject to an existing first priority lien under the 2022 Credit Agreement (such property, “ABL Priority Collateral”), (b) a perfected junior lien on all of our property subject to an existing first priority lien under the 2024 Term Loan (such property, the “Term Priority Collateral”), (c) a perfected first priority lien on all unencumbered assets that would otherwise constitute ABL Priority Collateral, and (d) a junior lien on all unencumbered assets that would otherwise constitute Term Priority Collateral, (iii) with respect to the DIP Term Lenders, secured by (a) a perfected first priority lien on all Term Priority Collateral, (b) a perfected junior lien on all ABL Priority Collateral, (c) a perfected first priority lien on all unencumbered assets that would otherwise constitute Term Priority Collateral, and (d) a junior lien on all unencumbered assets that would otherwise constitute ABL Priority Collateral, and (iv) entitled to adequate protection liens in favor of the DIP ABL Agent and DIP Term Agent (as applicable) on all unencumbered assets in accordance with the lenders’ intercreditor agreement. Under the DIP Credit Agreements, we will be able to make optional prepayments of the DIP Facilities, in whole or in part, without penalty (other than applicable breakage and redeployment costs and the payment of certain other fees as more fully set forth in the DIP Credit Agreements). In addition, subject to certain exceptions and conditions described in the DIP Credit Agreements, we will be obligated to prepay the obligations thereunder with the net cash proceeds of certain asset sales, with casualty insurance proceeds, extraordinary receipts or the proceeds of any indebtedness not permitted to be incurred pursuant to the terms of the DIP Credit Agreements. The scheduled maturity date of the DIP ABL Facility will be the earliest of (i) 150 days after entry of the interim DIP order, (ii) the date on which a chapter 11 plan becomes effective, and (iii) the closing date of a Transaction (as defined in the DIP ABL Credit Agreement). The DIP ABL Facility will bear an interest rate per annum equal to SOFR plus 3.50%. In addition, borrowings under the DIP ABL Facility will be limited to the lower of the maximum facility amount and borrowing base availability. The borrowing base availability amount will be equal to 90% of our eligible credit card receivables, up to 87.5% of the assessed value of certain eligible inventory, up to 15% of the assessed value of certain in-transit inventory, and subject to certain applicable reserves. The scheduled maturity date of the DIP Term Facility will be the earliest of (i) 150 days after entry of the interim DIP order, (ii) the date on which a chapter 11 plan becomes effective, and (iii) the closing date of a Transaction (as defined in the DIP Term Credit Agreement). The DIP Term Facility will bear an interest rate per annum equal to SOFR plus (i) 11.25% until entry of the final DIP order, and (ii) 9.75% thereafter. In addition, borrowings under the DIP Term Facility will be limited to the lower of the maximum facility amount and the borrowing base availability. The borrowing base availability amount will be equal to 10% of our eligible credit card receivables, up to 17.5% of the assessed value of certain eligible inventory, up to 15% of the assessed value of certain in-transit inventory, the value of certain real estate, the value of certain furniture, fixtures and equipment, and subject to certain applicable reserves. The DIP Credit Agreements contain representations, warranties and covenants that are typical and customary for these types of debtor-in-possession facilities, including, but not limited to, specified restrictions on indebtedness, liens, guarantee obligations, mergers, acquisitions, consolidations, liquidations and dissolutions, sales of assets, leases, payment of dividends and other restricted payments, voluntary payments of other indebtedness, investments, loans and advances, transactions with affiliates, sale and leaseback transactions and compliance with case milestones. The DIP Credit Agreements also contain customary events of default, including as a result of certain events occurring in the Chapter 11 Cases. The DIP Credit Agreements also require compliance with a variance covenant that compares actual operating disbursements and receipts and capital expenditures to the budgeted amounts set forth in the DIP budgets delivered to the DIP Agents and DIP Lenders on or prior to the closing date and updated periodically thereafter pursuant to the terms of the DIP Credit Agreements. The DIP Credit Agreements were approved on an interim basis by the Bankruptcy Court and are subject to customary conditions precedent. Stalking Horse Asset Purchase Agreement On September 8, 2024, we entered into a “stalking horse” Asset Purchase Agreement (the “Stalking Horse Purchase Agreement”) with Gateway BL Acquisition, LLC, an affiliate of Nexus Capital Management LP (in such capacity, the “Purchaser”) pursuant to which the Purchaser agreed to purchase substantially all of the assets of the Company (such assets, the “Assets,” and such transaction, the “Asset Sale”) for a purchase price of (A) $2.5 million in cash plus (B) (x) the repayment of all obligations under the 2022 Credit Agreement and the 2024 Term Loan and (y) the assumption of certain liabilities as set forth in the Purchase Agreement. The Assets to be acquired pursuant to the Asset Sale do not include, among other things, any executory leases or contracts that the Purchaser chooses to reject. Upon Bankruptcy Court approval, the Purchaser is expected to be designated as the “stalking horse” bidder in connection with the Asset Sale under section 363 of the Bankruptcy Code. The Asset Sale will be conducted through a Bankruptcy Court-supervised process pursuant to Bankruptcy Court-approved bidding procedures. The Asset Sale is subject to the receipt of higher or otherwise better offers from competing bidders at an auction (if applicable), approval of the Asset Sale by the Bankruptcy Court, and certain other conditions set forth in the Purchase Agreement. The Purchase Agreement contains customary representations, warranties and covenants of the parties for a transaction involving the acquisition of assets from a debtor in bankruptcy, and the completion of the Asset Sale is subject to a number of conditions, which, among others, include (i) the entry of an order of the Bankruptcy Court authorizing and approving the Asset Sale, (ii) the performance by each party of its obligations under the Purchase Agreement (subject to certain materiality qualifiers), (iii) the accuracy of each party’s representations (subject to certain materiality qualifiers), (iv) the delivery of certain closing deliverables, (v) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (vi) the absence of any order by any governmental authority that restrains, enjoins, stays, or prohibits the consummation of the Asset Sale. The obligation of the Purchaser consummate the Asset Sale is also conditioned upon (i) the Sellers having not experienced a material adverse effect and (ii) the Sellers satisfying certain requirements with respect to closing liquidity and contributed asset value. The consummation of the Asset Sale is also subject to the Purchaser’s receipt of committed debt financing prior to the hearing to approve the bidding procedures. The Purchase Agreement also provides for a break-up fee and expense reimbursement payable to the Purchaser upon the occurrence of certain events, and the forfeiture of a deposit to the Sellers upon the occurrence of certain events. Adoption of Accounting Standards Codification ("ASC") 852 – Reorganizations For periods occurring after the Petition Date, the Company will adopt Financial Accounting Standards Board ASC Topic 852 - Reorganizations, which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. These requirements include distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. The Company is currently assessing whether or not it qualifies for fresh start accounting upon emergence from Chapter 11. If the Company were to meet the requirements to adopt the fresh start accounting rules, its assets and liabilities would be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on its unaudited condensed consolidated balance sheets. Shareholder Matters On September 5, 2024, the Company received a written notification (the “Notice”) from the New York Stock Exchange (“NYSE”) stating that the Company is no longer in compliance with NYSE continued listing standards set forth in Section 802.01C (the “Minimum Stock Price Standard”) of the NYSE’s Listed Company Manual due to the fact that the average closing price of the Company’s common shares was less than $1.00 per share over a consecutive 30 trading-day period. On September 9, 2024, the NYSE announced that it had determined to commence proceedings to delist the Company’s common shares from the NYSE. Trading in the Company’s common shares was immediately suspended. The NYSE reached its decision that the Company’s common shares are no longer suitable for listing pursuant to the NYSE Listed Company Manual Section 802.01D after the Company’s September 9, 2024 disclosure that the Company commenced the Chapter 11 Cases. The NYSE filed a Form 25 with the SEC on September 10, 2024 to delist the Company’s common shares from the NYSE which will become effective on September 20, 2024. The Company expects that such delisted securities may be subject to trading in the OTC market. Distribution Center Closures | |
