U.S. discounter Target Corp. may be on the hook for a number of leases of the stores it is abandoning in its failed Canadian division.
Suppliers of the insolvent Target Canada disclosed in court on Monday provisions of a 2011 agreement under which Target Corp. bought Zellers leases to launch the U.S. retailer's chain in this country. The transaction's terms could make Target's parent company – rather than the failed Canadian unit – responsible for paying for some of the abandoned leases, according to the deal's wording. Previously, many Target landlords said they had secured guarantees from the U.S. parent, but the new information suggests that more landlords could collect even more from Target Corp.
"That is a significant piece of information that was never disclosed," Lou Brzezinski, a lawyer for some of the suppliers, told Ontario Superior Court.
Still, Jay Swartz, lawyer for Target's parent, said Target Corp. wasn't hiding anything and the 2011 agreement is "just not relevant" to suppliers.
The suppliers are suggesting that if the U.S. parent has to pay for some of the landlords' claims against Target Canada, it could leave more money in the insolvency case for other creditors. In all, the retailer, which went into bankruptcy protection in January, is estimated to owe creditors at least $2.2-billion, the court was told.
Suppliers' lawyers are attempting to set up a committee to represent the vendors, with their fees to be paid by the Target Canada funds being raised through lease, inventory and other property sales. They argue that much of the money collected by the retailer came from inventory liquidation sales. Those sales benefited from merchandise that was provided by the suppliers, which remain unpaid.
The suppliers are trying to get their hands on $1.9-billion of debt that Target Canada owes its own property company. And they say they should benefit from the sale of goods that Target purchased in the 30 days before it filed for bankruptcy protection. If the retailer had filed under different bankruptcy laws, the suppliers would have had the right to try to get back those 30-day goods.
Justice Geoffrey Morawetz commented that the Target case seemed to be proceeding in "a very chaotic manner" and that it was "astounding" that such matters as the Target Corp. lease guarantee were "coming up in such a disorganized manner."
But Alan Mark, a lawyer for Alvarez & Marsal Canada Inc., the court-appointed monitor, countered that the process has proceeded smoothly and quickly. He noted that Target's 133 stores in this country were closed by April 12, a month earlier than anticipated.
And he revealed that, so far, the sale of Target Canada store leases and real estate properties had raised $574-million in 69 proposed deals, which still have to be approved by the court.
On Monday, home improvement retailer Lowe's Canada said it had a $151-million deal to acquire the leases of 13 former Target Canada stores and its distribution centre in Milton, Ont. Wal-Mart Canada Corp. and Canadian Tire Corp. Ltd. have also announced agreements to pick up stores and a distribution centre. And major landlords have bought back some key leases.
But Target already has given back leases for 55 of its stores, unable to find suitable buyers.
Mr. Swartz, the lawyer for Target Corp., acknowledged in an e-mail the parent may be responsible for paying for more abandoned Target Canada leases than was previously disclosed or expected. Monday's disclosure of the Target-Zellers provision is potentially good news for landlords, which may recover more money than previously anticipated, he said. But it will not affect recoveries for suppliers, he added.
The Lowe's acquisition will result in Target Canada receiving $26.5-million, which its financial adviser said is probably more than it would have received had the stores been sold individually at auction, according to a court filing.
Under the terms of the agreement, Lowe's has to convince other retailers to waive their rights to prohibit or restrict Lowe's operations at the various locations. Otherwise, those stores will be removed from the deal and the overall value lowered.
Lowe's originally submitted a bid last month for 17 stores, but the list was whittled down after Target's financial adviser determined it could attract higher proceeds by eliminating four stores.