Sports Authority Almost Had To Shut Down Liquidating Stores, Still Pays Millions In Bonuses

Image courtesy of Nicholas Eckhart

Defunct sporting goods retailer Sports Authority almost had to shut down its liquidation sale early, having run out of cash. Instead, they made a last-minute deal with lenders to keep the liquidation sales going. Don’t worry, though: executives will still get a total of $2.85 million in bonuses.

Like people, businesses have secured creditors and unsecured creditors. To oversimplify, your home mortgage is secured credit line because the lender has the right to take back your house if you can’t make the payments.

A credit card is unsecured credit, since there’s nothing that the lender can take away if you don’t pay. Interest rates are higher on unsecured credit lines, since the lender’s risk is higher.

In the case of Sports Authority, the lenders that funded the company’s acquisitions of other sporting goods chains across the country and its effort to stay out of bankruptcy are the secured creditors. They’re first in line to get paid back when a company declares bankruptcy.

Unsecured creditors, which include landlords and suppliers, are at the back of the line and may not be paid at all. People who find gift cards in their junk drawer after a retailer shuts down are the very last in line, but are still technically creditors.

So far, all of the money made from selling cleats and ski pants in the liquidation sales has gone to lenders, and the company’s senior lenders say that they’re owed another $240 million on top of that. They’ve come to an agreement with the retailer to pay $71 million, leaving the rest of the sale proceeds for important expenses like store rent and legal bills.

Sports Authority Cuts Deal With Lenders to Avert Shutdown [WSJ]

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