Dive Brief:
- After filing for Chapter 11 late Tuesday, Party City secured provisional court permission to pay suppliers and other vendors deemed critical to its operations.
- The retailer on Wednesday asked a federal bankruptcy judge for authorization to spend $12.7 million in the near term to pay key domestic and international vendors, as well as lien holders and other trade creditors.
- All told, the party goods retailer and wholesaler expects to pay $74 million to its critical vendors over the course of its bankruptcy. Included in the company’s request are helium suppliers for its balloon business and those supplying Halloween and holiday goods, among others.
Dive Insight:
Party City filed for bankruptcy with a deal worked out among a group of debtholders that would remove some debt and reorganize the company for life after Chapter 11.
Continuity is key to being able to restructure in bankruptcy. As Party City said in court papers, if the company fails to provide customers a comprehensive offering of party goods, they may no longer see it “as a one-stop shop for their needs and may seek out lower prices at fragmented competitors in exchange for the convenience once offered” by the retailer.
A supply disruption of just one raw material, helium — shortages of which has given Party City numerous headaches in recent years — would “deeply and negatively impact” the company’s business as a whole, according to its restructuring officer.
The company said it places orders with many of its key suppliers up to a year in advance to give them time to develop, make and ship products. “Under these circumstances, any delay or interruption in the [company’s] ability to place orders and pay their Critical Vendors could have a ripple effect on liquidity for months to come,” Party City said.
And even a temporary interruption to supply would lead to “noticeable gaps” on Party City’s retail shelves. Moreover, Party City is a supplier of products to other retailers as well and needs materials and services to fill wholesale orders. Failing to offer and ship products could “kickstart a negative cycle that could seriously damage or eliminate” Party City’s relationship with its wholesale customers, the company said.
The company’s relationships with its suppliers already have come under strain after Party City delayed payments on invoices as it grappled with constrained liquidity amid falling sales and rising debt. As of filing, Party City estimated it already owed its domestic critical vendors $10 million and another $25 million to overseas claimants, among others.
Under the supervised process of Chapter 11, where payments of debts and claims are regulated, Party City has to seek court approval to distribute payments to its critical vendors. Getting the green light from the court to pay trade debts to suppliers incurred before bankruptcy can help keep those suppliers shipping through the process.
A final hearing on Party City’s critical vendor motion is scheduled for Feb. 14.
