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Sports Authority Chapter 11 filing expected to land Wednesday morning

Filing bankruptcy could give nation’s fourth largest sporting goods retailer a chance to engineer a recovery — or sell itself

sports-authority - Leonard Green & Partners


Sports Authority, the troubled Englewood-based sporting goods retailer, is expected to file for bankruptcy protection Wednesday morning, sources familiar with the plans told The Denver Post.

The Chapter 11 filing would confirm months of speculation that Sports Authority had overextended itself and was nearing the brink of bankruptcy.

The company, which was taken private by Leonard Green & Partners LP in 2006, has been negotiating with bondholders on a deal to reorganize through Chapter 11, Bloomberg previously reported.

The company in January skipped a $21 million interest payment on its $343 million of subordinated notes that are due February 2018 and weeks later cut 100 jobs — mostly corporate office positions — and its team sports division, sources said.

The layoffs were part of a “balance-sheet restructuring” intended to position the company for long-term growth, Sports Authority officials said at the time.

Sports Authority’s debt load is at least $643 million, according to Moody’s Investment Service, which has repeatedly downgraded the firm in recent weeks.

But the debt total could be as high as $1.3 billion, said Daniel Schniedwind, a vice president and credit research analyst with Denver Investments, which does not have a position in Sports Authority.

In addition to a $300 million term loan, which had $295 million outstanding in 2012, the company has $343 million in mezzanine financing as well as two asset-backed lines of credit of $650 million and $95 million, he said.

That total figure doesn’t include the debtlike instruments Sports Authority is carrying in leases, he added.

If Sports Authority enters into Chapter 11, debtor-in-possession financing probably would be arranged to provide the company cash to continue to operate, Schniedwind said. The company then would look at a store level to determine which locations are cash-flow positive, which are cash-flow negative and which have bad lease terms, he said.

Most, if not all, of the existing debt would get a haircut — possibly a reduction of 50 percent to 70 percent — and the terms would be extended, said Schniedwind, who is not familiar with the specific terms of Sports Authority’s negotiations.

“It’s worth more as an operating unit to the existing debt, if they can turn the operating performance around, ” he said.

At minimum, bankruptcy protection provides time as the company engineers its options, which could range from a full recovery to handing off its assets to another player, such as Dick’s Sporting Goods . The Wall Street Journal, citing unnamed sources, said Sports Authority, the fourth largest U.S. retailer, could end up shuttering all its stores if it does not meet the conditions of its bankruptcy financing.

Survival probably will require rethinking sales strategies to become competitive. Analysts say Sports Authority has failed to keep up with a swell of competition, notably industry leader Dick’s, which is not so debt-strapped, and online retailer Amazon. Sports Authority’s performance has been uneven, its margins too low and its debt too high, analysts have said.

“I think the sports industry remains very strong, ” said Matt Powell, The NPD Group’s vice president of industry analysis, who covers the sports and outdoor markets. “It’s a different sports industry than we knew five years ago.”

E-commerce sales far outpace those made at brick-and-mortar stores, he said. And athletic footwear and apparel have become hot commodities, while equipment for golf, fitness and youth sports have fallen out of favor, he added.

“There’s no question we’ve seen a move to smaller-format (stores), ” he said. “Retailers are figuring out that the big store that is trying to carry everything for everyone doesn’t work anymore.”

Sports Authority is expected to thin its 464 stores. The company is eyeing shuttering about 140 locations — including the Denver Sports Castle and two others in metro Denver — sources have told The Post. About 20 percent of the company’s 15, 000 employees are expected to be affected by the downsizing.

A smaller store base requires more nimble operations. Sports Authority is closing distribution warehouses in Denver and Illinois, keeping other centers open in California, Georgia and New Jersey.

In 2003, Gart Sports, the venerable Colorado-bred sporting goods company, merged with Florida-based Sports Authority. The $500 million deal combined the two publicly traded companies under Sports Authority’s flag at Gart’s Colorado headquarters.

Three years later, a Leonard Green & Partners-led group acquired Sports Authority for $1.3 billion.

Over the past decade, Sports Authority expanded in the United States and Puerto Rico while also taking on a 20-year, $60 million deal to replace Invesco as the named sponsor of the Denver Broncos’ stadium.

The next payment of $3.6 million is due Aug. 1. Sports Authority has made its payments “on time and in full since Day 1, ” officials for the Metropolitan Football Stadium District said earlier this year.

In 2014, Sports Authority had 470 stores and about $3.4 billion in revenue, according to Statista. According to a Jan. 21 research note from Moody’s, Sports Authority posted revenue of $2.6 billion for the 12-month period that ended in October.


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