West Marine Cancels Bankruptcy Auction After No Qualified Bids Emerge

West Marine has canceled the auction of its assets after failing to receive any qualified bids, causing its Chapter 11 bankruptcy proceedings to move toward a full court-supervised financial reorganization.

According to recent court filings, the retailer's planned auction was cancelled after the June 26th bid deadline passed without qualified offers for the company or its assets. As a result, West Marine will pursue its recapitalization plan outlined when it first entered Chapter 11 bankruptcy protection in May.

The canceled auction was a key component of West Marine's initial restructuring. Under the initial plan, the Florida-based parts retailer laid out two tracks: to either reorganize through a debt recapitalization, or sell some or all of its assets, but only if a third-party offer produced greater value for stakeholders. With no qualifying bids emerging, the sale process will end and the recapitalization plan will move forward.

The bankruptcy court also rescheduled the combined confirmation hearing for West Marine's reorganization plan to August 11th. Creditors have until July 31st to cast their votes on the new recapitalization plan.

West Marine first filed for Chapter 11 bankruptcy protection in May after reaching a restructuring agreement backed by the majority of its lenders and equity holders. At the time, the company said the court-supervised process would allow it to reduce debt while miantaining normal operations across its retail stores.

Unfortunately, in June, despite claiming it would not be part of the initial restructuring, West Marine announced plans to close 59 stores across 23 U.S. states. The closures represent nearly 30% of the retailer's approximately 200-store footprint. The store closings are intended to reduce operating costs during the reorganization and are set to proceed alongside the bankruptcy process, regardless of whether the company ultimately reorganizes or sells its assets under a different deal.

According to SBG, under the reorganization and recapitalization plan, West Marine's lenders will convert $251.2 million in loan claims into 100% of the new equity in the reorganized company. The Restructuring Support Agreement (RSA) was backed by 100% of its FILO (First In, Last Out) lenders and 96.2% of its term loan lenders.

Some of the largest term loan lenders include Garmin International ($8.57 million), Virtual Supply ($5.8 million), and Sierra International ($4.7 million). As those are considered 'general unsecured creditors,' the companies face what's known as a “death-trap” provision that will result in little to no financial recovery. West Marine's 30 largest general unsecured creditors amount to roughly $99.3 million and $109.2 million in money owed, according to SBG.

West Marine is privately owned and controlled by private equity firm Oaktree Capital and L Clatterton. Oaktree was founded in 1995 in Los Angeles and currently has over $220 billion under its management portfolio. L Clatterton joined the brand in just 2023 and has majority stakes in over 50 brands including Birkenstock sandals and Megabass premium fishing gear.

When L Clatterton initially came aboard, West Marine signed a debt deal known as a "liability management exercise," meaning the equity firm agreed "agreed to push down its own borrowings in the repayment line and inject fresh money into the retailer," according to Bloomberg. In that process, West Marine restructured $800 million of its debt to avoid court proceedings and received an influx of $125 million in new funds from L Clatterton. Since that time, debt issues have only gotten worse, due mainly to burdensome lease conditions on some retail properties and other market pressures.

Court documents also said West Marine ultimately filed for bankruptcy protection due to weakening consumer demand following the pandemic-era boating boom. They also cited inventory challenges, supply chain disruptions, and adverse weather as factors.

Due to the absence of qualified bids, the ownership of the reorganized company is now expected to transfer to the holders of West Marine's term loan debt under the proposed recapitalization plan. West Marine's existing shareholders, including former owners L Catterton and Oaktree, will lose their equity as ownership transfers to the company’s lenders.

West Marine will continue to operate its remaining retail locations, e-commerce business, and wholesale operations while bankruptcy proceedings occur.

According to Marine Industry News, West Marine intends to refocus its operations around West Marine Pro, its wholesale and professional division, which generates more than 40% of the company's overall revenue. The wholesale and professional division services marinas, rental operations, manufacturers, and dealerships. They also plan to further integrate their physical and digital operations with the West Marine Pro mobile app, which will link in-store inventory with its online platform so users can see stock availability and wholesale pricing.

#news #westmarine