When hhgregg filed for bankruptcy, the appliance and electronics retailer said it already had one possible, unidentified buyer lined up, ready to bid in the eventual auction. Alas, that bidder has reportedly backed out, leaving behind clues to its identity.
The Indianapolis Business Journal speculates that the anonymous bidder was somehow connected to the retailer’s advertising agency. In the bankruptcy, $8 million was set aside to pay “critical vendors,” or those essential to keeping the doors open and the shelves stocked.
Yet the store’s representatives wanted to spend $6 million of that money to pay the $6 million unsecured debt owed to the ad agency, explaining that this was a condition of the sale. Haier, an appliance maker that sells under the General Electric Appliances brand, filed an objection to this deal [PDF] earlier this week, arguing that without more information about what the ad agency did to deserve to be repaid in full, critical vendor status and the majority of that money should go to creditors that are actually critical vendors.
“[B]ased on the information currently available – which is precious little – paying the vast majority of the proposed Critical Vendor Cap to one unsecured creditor who is affiliated with the potential stalking horse, to pay the prepetition claim of that creditor at 100%, raises concerns,” Haier’s attorneys wrote in the objection. Other potential critical vendors would not be receiving 100% of the debt owed to them that hhgregg racked up before the bankruptcy.
While hhgregg took advantage of the recession, and especially the collapse of Circuit City, to expand in the last decade, what it failed to do was distinguish itself. The chain “did not effectively distinguish itself from other companies selling consumer electronics and home appliances,” National Real Estate Investor observed. The chain’s roots as a family-owned appliance store became obsolete as customers shopped for bargains rather than choosing a store based on personal connections.
Don’t worry, though: The company still plans to exit Chapter 11 by mid-May, and explained in a press release that it has other interested bidders, who may even understand the importance of keeping appliance vendors happy when you’re an appliance store.