HIVE EXCLUSIVE: Video City Emerges From Bankruptcy10 Jul, 2001 By: Joan Villa
Bakersfield, Calif.-based Video City emerged from bankruptcy today pared down to 41 stores but debt-free, intending to operate solely on cash flow and approximately $1.4 million in trade credit.
The reorganization plan was approved by the U.S. Bankruptcy Court for the Central District ofCalifornia after creditors and shareholders “voted overwhelmingly” to approve the plan, says Video City attorney Marty Brill of Los Angeles law firm Levene, Neale, Bender, Rankin & Brill. “The few minor objections were resolved prior to the hearing.”
Video Product Distributors will be the predominant supplier for VHS and DVD product going forward, with Ingram Entertainment a secondary wholesaler for games, Brill explains.
“We got bankruptcy court approval today to get trade credit for them secured by the assets of the company, up to $800,000,” he adds. Ingram Entertainment received guarantees of up to $250,000and Warner Home Video was authorized for as much as $300,000, Brill notes.
VPD president Tim Shannahan was on vacation and could not be reached for comment.
Rentrak Corp., which with $12.7 million outstanding before the bankruptcy is the second biggest creditor after the $14.77 million owed to Ingram, was not included in the court agreement. VideoCity has not purchased product from Rentrak during the course of the bankruptcy, Brill says.
“It’s a tremendous result for the company and the creditors,” Brill notes. “When the case was filed, Video City had over $11 million in secured debt and $40 million in unsecured debt and now it’s emerging virtually debt-free. Their only debt is trade debt.”
Top creditors will split 5.53 million shares of stock as payment, while common stock shareholders will receive one share of stock in the reorganized company for each 23.53 shares they currentlyown.
Video City’s stock suspended trading after filing for bankruptcy, but Brill says trading will resume in about 60 days when the retailer catches up with all past filing requirements of the Securities & Exchange Commission.
However, the creditors committee did not exercise an option to replace directors on the Video City board, leaving company founder and former c.e.o. Robbie Lee as chairman. Lee relinquishedday-to-day management in March to Timothy Ford, a longtime employee who has held several Video City positions; Ford will continue as c.e.o. for the newly reorganized company.
Ford could not be reached for comment.
Going forward, Video City will operate a little leaner, with 41 total stores following a handful ofadditional closures and openings, Brill says. The chain had 77 stores when it filed for Chapter 11bankruptcy protection in August.
However, the chain has operated profitably during bankruptcy and maintained a good inventory of product, he insists. “Throughout the [bankruptcy] case they kept the stores well stocked with new releases.”