by Ad hoc group of Badcock dealers, B. Riley Financial, debtors settle surcharge dispute
Just a week ago, an ad hoc group of 93 former Badcock dealers and BRF Finance were sparring in the Conn’s bankruptcy. Using motions filed with the court, the parties were disputing what still is owed the dealers for winding down the Badcock Home chain last October and November. A DIP plan assured them $5.3 million in commissions and bonuses, according to the motion filed by the dealer group.
Both the debtors-in-possession and BRF Finance disputed those terms, according to motions each filed earlier this week. But, after a lot of phone calls and, judging by the bonhomie in the Houston courtroom on Wednesday, because of a shared resolve among the attorneys to settle before increasingly scarce financial resources further diminish, a deal has been struck.
The settlement the parties reached shows rather dramatically that all involved wanted to avoid dragging this out for fear that few would end up getting anything. The ad hoc group sought $5.3 million. BRF sought to block that, probably because BRF is owed about $100 million by what’s left of Conn’s-Badcock.
So, the parties agreed to the following: The ad hoc group of dealers will receive their pro rata share of a $2 million distribution based on the 5% bonus (or administrative expense) claim, or approximately $1.3 million, according to Cameron Kelly, the attorney at Wednesday’s hearing representing BRF Finance.
Of that $1.3 million payout, roughly $700,000 will be distributed immediately upon the court’s approval of the necessary paperwork (Rule 9019). The remaining $600,000 will be paid after confirmation of the larger plan to sell remaining assets of the estate, which are principally receivables and real estate, according to Duston McFaul, an attorney representing the DIP.
The settlement also provides for payment of certain of the ad hoc group’s attorney fees, according to Kelly.
Finally, the negotiated settlement stipulates that once BRF Finance recovers roughly half of its $100 million debt claim, or about $50 million, the ad hoc group of dealers “will share dollar for dollar in any additional recoveries,” Kelly told the court during a 14-minute hearing.
“We’re hopeful that this will be a path to recovery for both the prepetition 2L lender (BRF Finance) and the ad hoc group of dealers,” he said.
In return, Kelly said, the dealers will withdraw their motion to compel and won’t file a motion for surcharge.
“We’re going to work with the debtors to seek emergency consideration of the 9019 to get the dealers the money as quickly as possible,” Kelly assured the court. “We recognize the dealers provided a service to the estate in liquidating this collateral. They knew how to liquidate better than anyone else. We’re happy to come to terms, and I think we’ve reached a deal that’s in everyone’s best interests.”
(In bankruptcies, Rule 9019 allows the court to approve a compromise or settlement, and it triggers notifications to all creditors, the United States trustee, the debtor(s) and others who might be involved.)
Check is in the mail
For his part, the attorney representing the ad hoc group of dealers, Lloyd A. Lim, simply confirmed the terms as described by Kelly and thanked the respective parties for their work to come to an agreement.
We learned a few other details during McFaul’s opening remarks. First, all of the Conn’s locations were liquidated and shuttered by the end of October. Because of bad weather in Florida and throughout the Southeast, the Badcock’s chain took a bit longer to wind down, but had been completely liquidated by the end of November.
McFaul also mentioned that Conn’s CEO, Norman Miller, had retired or otherwise stepped down at the end of last year and that the CFO, Tim Santo, will be “transitioning” by the end of this month.
The settlement announced Wednesday addresses the concerns of 93 of the 119 Badcock dealers. Kelly said the particulars of how the non-ad hoc group dealers will be handled haven’t yet been determined.
For his part, bankruptcy judge Alfredo Perez said he is “sensitive to trying to get as much of the money to as many of the dealers as quickly as possible,” assuring all that he would look at the 9019 just as soon as it is filed with the court.
B. Riley business beat
The settlement was just one of several happenings involving B. Riley this week. Just a days after announcing a $160 million debt facility from Oaktree, the firm’s partner in spinning off Great American, BRF posted its preliminary fourth-quarter financials to end a series of delays in making that filing.
Still reeling from losses related to the bankruptcy of Franchise Group, BRF states in its filing that the quarterly loss from continuing operations is expected to range from $178 million to $187 million. Net income will likely be in the range of $48 million to $68 million, or $1.57 to $2.22 a share, according to the unaudited results.
“This quarter reflects a demarcation line from managing the losses in our principal investments to moving forward with our core businesses as the primary focus,” Bryant Riley, chairman and co-CEO of BRF said in a release. “During the quarter, we made important progress monetizing non-core assets and addressing our near-term liabilities. At the same time, our results were negatively impacted by a number of unusual expenses related to legal, transaction and restructuring fees, which we believe will decline as we progress through 2025.”
BRF was helped by $236 million to $247 million gained from discontinued operations, which primarily was the divestiture of a majority interest in the Great American businesses in a deal with Oaktree Capital Management, money that was used to pay off Nomura bank. BRF also sold off Atlantic Coast Recycling for $70 million.
“The steps we’ve taken over the past year, which include reducing debt by more than $700 million since January 2024, have enabled us to retire our Nomura facility and look forward as a company,” Riley stated. “While we recognize we have work to do, we do believe the worst is behind us and remain confident in the future based on the underlying strength of our core businesses.”
The Oaktree lifeline is rather shocking. At $160 million, it’s $33 million more than BRF’s entire market capitalization, according to reporting by Bloomberg. This would seem to give Oaktree considerable influence on BRF. Oaktree is a global asset management firm specializing in “alternative investment strategies.” As of Sept. 30, 2024, the company managed $205 billion for its clients.
BRF’s fourth-quarter filing follows its much-delayed preliminary third-quarter filing late last month. And while the company vowed to resume filing on time, it then immediately alerted the investment community that its audited, full-year 2024 results might be further delayed.
The share price for BRF rose 46 cents Wednesday to close at $5.70. In the last year, it has traded as low as $2.30 per share and as high as $40.09 per share.
