PORTLAND, Ore. -- Orchard Supply Hardware is scheduled to become a standalone subsidiary of the $50 billion Lowe's home improvement mega chain under a brokered bankruptcy deal announced Monday.
San Jose, Calif.-based Orchard operates 89 smaller-format hardware stores in California and opened two in Oregon in April. The heavily advertised stores are in Portland and Tigard and employ about 160 people.
Orchard filed for protection from creditors under Chapter 11 in U.S. Bankruptcy Court for the District of Delaware Monday, just two years after it spun out from Sears as a publicly traded company. The deal left it with significant debt. The company said it filed for bankruptcy after concluding it would not meet its debt obligations due in December.
The bankruptcy filing sets the stage for the court to auction its assets. Under terms of the deal disclosed Monday, Lowe's Cos. Inc. (NYSE: LOW) will serve as the stalking horse bidder with an offer that includes $205 million in cash and the assumption of Orchard's debts to its suppliers.
Orchard secured $177 million in debtor-in-possession financing from Wells Fargo Bank to execute its turnaround and provide interim financing. It said its term loan lenders have agreed to support the agreement with Lowe's.
If Lowe's prevails in the auction, it will acquire at lease 60 Orchard locations and operate them as a separate, standalone brand. It is not clear if the Oregon stores will be part of the sale. Lowe's said it is still valuating individual stores.
"Orchard's neighborhood stores are a natural complement to Lowe's strengths in big-box retail, offering smaller-format hardware and garden centers catering to the needs of local customers," Robert Niblock, chairman, president and CEO of Lowe's said in a press release. Mooresville, N.C.-based Lowe's operates more than 1,750 stores in the U.S., Mexico and Canada.
The company will fully pay vendors for goods and services delivered June 17 and later. Debts incurred before then will be addressed through the Chapter 11 process. Orchard said it expects Lowe's will assume the debts as part of the sale agreement.
Orchard reported $657 million in revenue in its 2012 fiscal year.
In its bankruptcy petition, Orchard listed 1,000 and 5,000 creditors, $441 million in assets and $480 million in liabilities. It has 4.83 million shares of Class A common stock, 8.6 million shares of Class B common stock and 1.19 million shares of Class C common stock.
Its five largest unsecured creditors are Kawahara Nursery Inc., Morgan Hill, Calif., owed $1.46 million; The Scotts Company Inc., Chicago, owed $910,483; Milwaukee Electric Tool Co., Chicago, owed $790,195; Richard W. Wilson (Colorama), Azusa, Calif., owed $756,693; and Hillman Group Inc., Atlanta, owed $745,773.
The Oregon stores are at 10860 S.W. Barnes Road in Portland and 9770 S.W. Scholls Ferry Road in Tigard.
The Portland Business Journal is a KATU news partner.