Target Canada got court protection from creditors on Jan. 15 after less than two years in this country. It closed all 133 of its discount stores by mid-April.PETER POWER/Reuters
Insolvent Target Canada has proposed a recovery plan for its creditors that would see many of them being paid up to 85 per cent of their claims but could mean much less for some of its landlords.
In documents filed in court on Friday, Target Canada says its U.S. parent company agreed to let creditors have a controversial $1.4-billion of intercompany claims that could have landed in its corporate coffers. But in exchange, Target is proposing that landlords accept a formula of payments, plus a "top-up," which would release Target Corp. from having to guarantee future lost rents for some landlords.
The proposed plan would pay suppliers and others 75 to 85 cents on the dollar but will probably not be satisfactory to at least some landlords, sources familiar with them said.
"It absolutely avoids protracted litigation and delay," Tracy Sandler, a lawyer for Target Canada, said in an interview.
On Jan. 15, Target Canada filed for court protection under the Companies' Creditors Arrangement Act, owing creditors roughly $2.6-billion. Within three months, it closed its 133 stores here, leaving behind shocked employees, suppliers, landlords and in-store pharmacists.
Suppliers were upset that Target used their inventory in discounted close-out sales.
If the retailer had filed under bankruptcy laws, the vendors would have had the right to request that they get back their merchandise that was shipped 30 days before the filing.
Landlords had argued that under the Bankruptcy and Insolvency Act they would have had more input and certainty in the process.
But the proposed recovery plan "is going to be far superior to what would result from a bankruptcy of Target Canada," Ms. Sandler, a lawyer at Osler Hoskin & Harcourt LLP, said on Friday.
Still, some landlords had secured guarantees from Target's U.S. parent that it would continue to pay rent in the event that the retailer faltered. Many of those landlords with long-term leases are concerned that the latest recovery proposal could leave them with as little as 20 cents on the dollar and jeopardize their right to collect for those future payments, sources said.
Nevertheless, Ms. Sandler countered that "when considering the landlord claims, it is necessary to take into account mitigation of damages."
At least one former Target landlord – its largest – is satisfied. On Monday, RioCan Real Estate Investment Trust reached a $132-million settlement with Target, including $92-million that belongs to RioCan and the rest to its partners. In return, RioCan is no longer a Target creditor.
"Target is out of our lives," Edward Sonshine, chief executive officer of RioCan, said in an interview this week. He said his team had calculated that the total amount it could have collected from Target under its guarantees if the stores had stayed empty long term would have been $250-million.
"Do I wish it never would have happened?," Mr. Sonshine asked rhetorically. "Yeah."
While many landlords are struggling to fill Target's space, RioCan has assigned new tenants to some or parts of its 26 former stores.
Lou Brzezinski, a lawyer for some suppliers, said they are pleased with the Target proposal.
In a filing, Target says "an essential component" of the proposal is the involvement of Target Corp., the largest single creditor, as "plan sponsor."
"The level of recovery under the plan is only possible because Target Corp. has agreed for purposes of the plan to permit the subordination of approximately $5-billion of intercompany claims against the Target Canada Entities," it says. In January, the U.S. parent already had agreed to subordinate, or release, more than $3-billion of intercompany claims.
For landlords, the plan uses a Bankruptcy and Insolvency Act formula plus an enhanced payment "to provide a more substantial recovery," the document says. "Use of a uniform formula avoids the cost and delay inherent in valuing landlord claims on an individual lease-by-lease basis and the uncertainty associated with future events, including mitigation."
Late Friday, property manager Bentall Kennedy Group, on behalf of five landlords, asked the court to order Target to pay it about $4-million in unpaid rent under the retailer's guarantees.
"The landlords have suffered losses … and will continue to suffer losses until each premise can be re-let to a replacement tenant," Stephen Michniewicz, senior vice-president of national retail operations at Bentall, said in an affidavit.
Target's filing says: "A major issue for the estate in developing our plan is that Target Corp. is a significant stakeholder in the proceedings, controlling massive intercompany claims that have the potential to swamp the recoveries of all other creditors, unless Target Corp. was prepared to subordinate the vast majority of these claims.
"In an effort to maximize recoveries for all creditors, Target Canada entered into a series of vigorous negotiations over the course of months with Target Corp. Target Corp. maintained through that it would only subordinate these claims as part of a global resolution of all claims, including the settlement and release of all landlord guarantee claims against Target Corp. (and the resulting elimination of subrogated claims for the benefit of the estate).
Target Canada says it believes its proposed plan "maximizes creditor recovery and will facilitate the controlled and orderly winddown of" Target Canada in a timely manner "without protracted litigation and delay which could detrimentally impact the recovery from the estate," it says.
It says landlords, like other creditors, are expected to recover 75 to 85 per cent of their "proven formula and other claims." As well, landlords with guarantees from Target Corp. will be paid an "enhanced and accelerated" amount on the initial distribution date, resulting in them receiving 100 per cent of their "proven restructuring period claims."
Creditors are to meet on Jan. 15 – exactly a year after the retailer filed for court protection – to approve the plan, allowing Target to ask the Ontario Superior Court on Jan. 20 to sanction it.