According to Bloomberg, Pennsylvania-based GNC Holdings Inc. filed for bankruptcy protection with the aim of selling itself and closing stores after its latest effort to manage its debt load unraveled amid the coronavirus pandemic, the company announced on Tuesday.
The health and wellness company’s Chapter 11 petition filed in U.S. Bankruptcy Court in Delaware allows the retailer to keep operating and shut hundreds of under-performing stores. As part of the bankruptcy restructuring, GNC will seek to speed up closures of at least 800 to 1,200 stores. The chain sells health and nutrition products worldwide, including vitamins, supplements, minerals, herbs, sports nutrition, diet and energy supplements. It has about 5,200 retail locations throughout the U.S., including around 1,600 Rite Aid store-within-a-store locations, as well as operations in about 50 international markets.
The retailer planned a dual-track scenario where it will restructure its balance sheet through a standalone plan or sale of the company, according to a statement.
GNC entered into the process with a potential buyer and agreement in principal with an affiliate of its largest shareholder, China-based Harbin Pharmaceutical Group Holding Co., the company said. Harbin and other potential co-investors will serve as a so-called stalking-horse bidder of the company’s assets in a court-supervised sale process, according to filings.
The agreement sets an initial bidding price of $760 million for GNC, subject to a bankruptcy judge’s approval. A higher bid may be presented and accepted, and would be implemented instead of just the standalone plan transaction, according to the company. It also includes support from its largest vendor and joint venture partner, IVC.
GNC’s pre-negotiated plan of reorganization will also include store closures as it looks to emerge leaner with fewer locations and less debt. Certain lenders also provided $130 million in additional liquidity to financially support the company through its proposed restructuring.
With the support of its lenders and stakeholders, GNC expects to confirm a standalone plan of reorganization or complete a sale that will allow the business to exit from its restructuring process by the fall. GNC’s U.S. and international franchise partners and its corporate operations in Ireland, which are separate legal entities, aren’t part of the bankruptcy.
The turnaround will be complicated by the retail industry’s temporary shutdown of stores to help stop the spread of COVID-19. That has been partially offset by the company’s e-commerce operations, whose sales increased 25 percent in the first quarter.
As cash on hand dwindled, GNC warned it might face bankruptcy unless it found a way to pay hundreds of millions of dollars in debt due in May. Management has been in talks with lenders about a refinancing that would extend maturity dates and buy time for a turnaround.
The bankruptcy plan calls for a commitment from certain term loan lenders who agreed to provide GNC with $100 million of new money structured as a debtor-in-possession loan, and an additional $30 million from various changes to the company’s existing credit agreement, according to the statement. With the increased liquidity and cash flow from ongoing operations, GNC said it will meet its “go forward financial commitments” as it works through the process.
