Party City files for bankruptcy protection (updated)

Following dwindling sales, Woodcliff Lake-based Party City Holdco Inc. (PCHI) filed for bankruptcy protection in an attempt to restructure its debt.

In a Jan. 17 notice, the party goods retailer announced it filed for Chapter 11 relief in the U.S. Bankruptcy Court for the Southern District of Texas and entered into a restructuring agreement with a bondholder group that will enable the company to substantially reduce its $1.67 billion debt load.

Party City also said it is asking the court to maintain “business-as-usual operations” to keep its 800-plus stores open, pay wages and benefits, and “honor customer programs and policies.”

Additionally, the company said it has secured $150 million in debtor-in-possession financing and that the funding, which is subject to court approval, would be used to support operations.

The restructuring is expected to be completed in the second quarter of 2023, according to Party City. Its subsidiaries outside of the U.S., its franchise stores, and its Anagram business are not part of the bankruptcy proceedings.

In a statement, Party City Chief Executive Officer Brad Weston said, “In the face of pandemic headwinds, a global supply chain crisis, and other macroeconomic challenges that have faced our industry, we have made significant strides in PCHI’s ongoing transformation – establishing a solid foundation for long-term growth and continued success as the market leader in the celebrations space. Today’s action to strengthen PCHI’s balance sheet will bolster our ability to further advance our strategic priorities and continue to innovate and elevate the customer experience.”

Weston added, “As we take this important step to put our business on stronger financial footing for the future, we are as committed as ever to inspiring joy by making it easy for our customers to create unforgettable memories. We appreciate the commitment of our team members and the continued support of our partners as we further enhance our position as the ‘go to’ one-stop-shop for celebrating life’s special moments.”

Under pressure

During the company’s most recent earnings call in November, Weston said inflationary pressures were continuing to impact consumers’ ability and willingness to shell out more money on celebrations.

As of Sept. 30, 2022, Party City reported $1.67 billion in debt, with available liquidity of $122 million, made up of $30 million in cash and $92 million of revolver availability.

For the third quarter of Fiscal Year 2022, Party City recorded total net sales of $502.2 million, a 1.6% decrease from the third quarter of 2021. Meanwhile, its adjusted loss for the period came in at $1.39 per share — wider than Wall Street analysts’ estimates of $0.10 per share.

To manage the difficult period, Weston said at the time that the company would trim costs by $30 million, savings that it expects to come out of retail store efficiencies, like information technology contracts, marketing expenses, professional services and raw materials. Additionally, the company reduced its corporate workforce by 19% through a combination of position eliminations and leaving open positions unfilled, he said.

After hiring Peter Smith as Party City’s new chief operations officer in November to spearhead the plan – as well as optimize its supply chain – the retailer reportedly renewed talks a few weeks later with advisors to address liquidity issues and help with restructuring.

As of Jan. 16, 2023, Party City has retained David Orlofsky of consulting firm AlixPartners to serve as its chief restructuring officer, according to the company’s filing with the U.S. Securities and Exchange Commission.

In that role, Orlofsky will oversee all restructuring activities, cash management and liquidity forecasting as well as development and revisions to the company’s business plan and engagement with creditors and other stakeholders.

Founded 36 years ago in East Hanover, Party City is the largest retailer of party goods in the U.S., Canada and Mexico. It operates more than 900 company-owned and franchise outlets under the Party City, Halloween City, Toy City, Factory Card and Party Outlet brands. However, the company has struggled to keep pace with changing consumer behavior in recent years, particularly amid the growth of e-commerce and big box retailers.

Since 2019, the company has been working on large-scale changes, such as restructuring its debt and closing 55 stores.

Party City’s credit risk was downgraded in November 2022 by Fitch Ratings, which cited “rapid deterioration” in the company’s operations and liquidity along with a “likely untenable” capital structure. Due to a number of factors – such as supply chain challenges, rising input costs and “mis-execution” – Fitch said the company’s financial results have “steadily weakened” throughout the course of 2022 and would be at risk of default “unless operations meaningfully improve over the next 12-18 months.”

The bankruptcy petition comes a month after Party City was notified by the New York Stock Exchange (NYSE) that it is at risk of being delisted for failing to maintain an average $1 per share stock price over a 30-day trading period.

Last fall, it became the first company to win an award under the state’s Emerge Program, a $14.5 billion job creation package launched using funding from the New Jersey Economic Recovery Act of 2020.

“Party City has not yet received any of the tax credits for which it was approved,” a representative from the New Jersey Economic Development Authority (NJEDA) told NJBIZ. “As the Emerge program is performance-based, an approved company only begins receiving its annual disbursement of tax credits once it has certified that it has met the commitments it made for job creation and investment at the time of its approval.

Editor’s note: This story was updated at 7:19 a.m. ET Jan. 19 to include a statement from the New Jersey Economic Development Authority.