by At first blush, Walker Edison’s bankruptcy filed just over a week ago appears to be simply the latest of a disturbingly long line of fiscal failures in the furniture sector. A flurry of motions, all of them approved by the Delaware bankruptcy judge during an Aug. 29 hearing, greenlighted the plan to sell most of the RTA e-commerce player’s assets to a competitor, Boca Raton, Florida-based Twin-Star International.
A closer read of the filings, however, reveals that this bankruptcy is anything but ordinary.
Most bankruptcy filings punctuate straightforward but sad endings, and they typically cite a difficult economy, consumers’ tight grip on discretionary income, and other circumstances beyond anyone’s control, such as a pandemic, port strikes or tariffs. This one, however, names names, and based on how the emergency funding is to be allocated, this one seeks retribution, as well. A centerpiece of the proposed plan is a $7 million litigation trust or war chest to fund pursuing fraud claims in Utah’s courts against the former owners.
Walker Edison’s CFO, Nate Brown, states at the top of his declaration in support of the petition that while the debtors have been trying to stabilize business operations for years after “the former owners, founders and management essentially abandoned the company to the current owners,” those efforts have failed.
Left holding the bag?
The Utah litigation has Walker Edison’s debtors-in-possession claiming that the former owners, which include founders Brad Bonham and Matt Davis, induced lenders to provide $300 million in financing in March 2021 by presenting financial statements that “significantly misstated the company’s financial health” and concealed mounting operational problems, according to Brown’s declaration.
This loan subsequently funded a roughly $210 million special dividend in 2021, according to Brown, or what he terms a payout to those exiting owners.
“These former shareholders distributed hundreds of millions of dollars to themselves amid skyrocketing sales costs and sluggish sales based on financial data that significantly misstated the company’s financial health,” Brown testifies, “leaving the current owners, the Prepetition Term Lenders, holding the proverbial bag.”
Citing the lawsuit against the former owners, Brown states that it is his understanding that the term lenders were induced to loan the $300 million only to find out that they had done so on the basis of false information given to them by the now former shareholders, which also include private equity firm Prospect Hill.
Walker Edison generated approximately $125 million in annual sales in 2024 and, according to Bonham in a YouTube recording of a podcast interview, about $40 million in 2015. (The podcast includes quite a bit of information detailing the startup of the company and growth over time.)
Who knew what?
Brown further asserts that the former shareholders “knew at the time of the loan transactions” about financial challenges the company faced, “such that pulling money out of the Debtors would leave the Debtors with insufficient capital to operate.”
Brown’s declaration blames the bankruptcy squarely on the alleged fraud, saying that when the former owners left in January 2023, they turned “the keys over to the Prepetition Term Lenders and (left) them to deal with the aftermath of the crisis” that the departing owners had created. The term lenders were led by Owl Rock Capital Corp.
“Once the Prepetition Term Lenders took possession,” Brown states, “the scope of the Former Shareholders’ malfeasance became clear.”
The picture Brown paints is of three principal owners orchestrating a scheme to fund a massive payday for themselves while hiding the company’s quickly deteriorating financial condition and debt that the company would be unable to pay back. To be fair, neither Bonham nor Davis has been given an opportunity to present their side of the story. Prospect Hill hasn’t either. A bankruptcy hearing scheduled for Sept. 23 might offer that opportunity.
Walker Edison’s petition estimates between $100 million and $500 million in liabilities and roughly $225 million in secured claims. The company’s debt adds up to $214 million.
Potential buyer identified
Delaware bankruptcy Judge Thomas Horan has approved a $13 million DIP loan extended by existing lenders, $7 million of which is earmarked to fund pending litigation that the company has already filed against the former owners. This leaves $6 million to fund the West Jordan, Utah-based company’s plans to auction off its assets at the end of September, to continue to pay employees, and to pay rents, vendors and suppliers.
Representing Twin-Star International as stalking horse bidder is Sidley Austin, a name that keeps popping up in furniture bankruptcies. Following the acquisition, Walker Edison will continue operating as part of Twin-Star, according to Sidley, but under the Twin-Star name.
You might remember Sidley Austin from the Conn’s-Badcock bankruptcy, which wound down last month in a confirmation hearing. The centerpiece deal in that bankruptcy was the $353 million sale of a substantial portion of Conn’s assets to stalking horse bidder Jefferson Capital Systems.
The sale makes sense. Selling to and through Walmart.com, Target.com, Wayfair, Overstock.com, Home Depot and others, Walker Edison supplies mostly RTA furniture. Twin-Star sources fireplaces, consoles, desks and indoor and outdoor home furnishings. Twin-Star is bidding $20 million plus assumed liabilities.
In addition to the Sept. 23 hearing, Horan has set a deadline for filing objections of Sept. 16 and a Sept. 22 deadline for rival bids. If there is a competing bid, an auction will take place on Sept. 24, according to the court filings.
Discovery in the Utah lawsuit, which was initiated in 2023, is set to conclude on Oct. 23. The DIP make several claims against the former owners, including wrongful distribution, fraudulent transfer, breach of fiduciary duty and fraud. They are seeking “hundreds of millions of dollars in actual and punitive damages,” according to the filings.
Celebrated Salt Lake startup
Founded in Salt Lake City in 2006, Walker Edison sold a majority stake in the company to Prospect Hill in September 2018 on terms that were not disclosed. According to CI Technology, it has 700 employees. Twin-Star started up in 1996 and was acquired by Z Capital Group in April 2016.
Walker Edison’s earnings before interest, taxes, depreciation and amortization were $13 million in 2017, and by 2020, its EBITDA reached $84 million, according to the declaration. Brown said that in the years since the pandemic’s worst, Walker Edison has struggled with lower consumer demand and higher operating prices plus costs connected to the $300 million term loan.
The litigation against the former shareholders began as two lawsuits, one brought by Walker Edison and the other by first lien lender Blue Owl Capital. For discovery purposes, the two have been consolidated.
Blue Owl has already marked down its $69 million loan to Walker Edison to approximately $4 million, or just 6% of the outstanding amount, according to Blue Owl’s 10-Q for the quarter ended June 30.
Walker Edison’s bankruptcy has been brewing since June, when the company’s board of managers appointed an independent restructuring manager, Thomas Walper, and charged him with exploring options for the company going forward. At the same time, Morris, Nichols, Arsht & Tunnell was brought on as restructuring counsel, Lincoln International as investment banker, and MACCO Restructuring Group as restructuring adviser.
About eight weeks later, a sale to Twin-Star was in place to preserve “employment for many of Company’s employees and allow the Company to satisfy its first-lien debt in full,” Brown’s declaration states. Brown warns, however, that a lack of liquidity and the declining value of assets necessitate a quick sale.
