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Chinese buyers outbid Spencer at NH-based Brookstone auction

Bloomberg News

June 04. 2014 8:17PM
Diane Seabury, right, from Manchester, helps her sister Linda Peters, from Pelham, with a massage chair as their niece Jenna Bourque, 15, from Nashua laughs in Brookstone at the Mall of New Hampshire in Manchester on Black Friday, November 2010. The bankrupt gadget retailer agreed to sell its assets to a group of Chinese buyers for more than $173 million. (UNION LEADER FILE)

Brookstone Co. will be taken over by a pair of Chinese buyers at the June 23 hearing for approval of the Chapter 11 plan, if the bankruptcy judge in Delaware sides with the 242-store specialty retailer and rules that the offer by Spencer Spirit Holdings wasn’t as good.

Although the official creditors’ committee disagrees with the company’s decision, Merrimack, NH-based Brookstone concluded that the Chinese group made the highest or best offer at this week’s auction. The group, composed of retailing conglomerate Sanpower Group and Hong Kong-based private-equity firm Sailing Capital, offered more than $173 million.

According to Cathy Hershcopf, a lawyer for the official committee representing unsecured creditors, the Spencer offer was better because it would close only one store, while the Chinese buyers would shutter as many as 25. Closing more stores creates more claims to dilute the pot for unsecured creditors.

Unsecured creditors will recover 10 percent less under the Chinese offer, Hershcopf said.

Brookstone filed under Chapter 11 on April 3 and submitted a revised disclosure statement on May 7 explaining a settlement resolving opposition from unsecured creditors to the proposal for distributing sale proceeds.

When Brookstone filed under Chapter 11, Spencer was already under contract to buy the business for $146.3 million. Brookstone settled with the unsecured creditors’ committee by carving out some sale proceeds. The disclosure statement shows general unsecured creditors with a recovery between 11.4 percent and 30.5 percent.

For second-lien noteholders, the recovery after the settlement is predicted at 34.2 percent. For their deficiency claim, secured noteholders don’t receive anything set aside for unsecured creditors.

The plan gives unsecured creditors $1.25 million in cash from sales proceeds. If the price goes up at auction, unsecured creditors receive 15 percent, up to a maximum of $1.5 million more. Brookstone won’t sue suppliers to recover preferences, or payments received within three months of bankruptcy.

Brookstone operates in 40 states, with 195 stores in malls and 47 in airports. Sales in fiscal 2013 declined 7.4 percent to $481.3 million. The chain was acquired in 2005 by a Singapore-led group including Osim International and state-owned Temasek Holdings.

The retailer listed liabilities including $34.1 million on a revolving credit, a $12.3 million term loan, and $4.7 million on letters of credit supplied by Wells Fargo as agent. Second-lien notes total $137.3 million.

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