Introduction

On November 10, 2008, National Wholesale Liquidators (“NWL” or the “Debtor”), filed a chapter 11 petition for bankruptcy in the United States Bankruptcy Court for the District of Delaware (read the NWL bankruptcy petition here). According to the Declaration of NWL’s CFO, NWL began business as a merchandise close-out store 24 years ago. Since1984, NWL has grown to almost 2,000 employees working in stores and distribution centers in 10 states throughout the Northeast and Midatlantic.

Events Leading to Bankruptcy

NWL began experiencing declining sales approximately one year ago. Like with many retail bankruptcies, consumers began buying less in the Fall of 2007 due to rising commodity prices, rising interest rates and less disposable income. NWL’s problems worsened in 2008 when credit became tight. With less cash available, NWL could not maintain appropriate inventory levels, which further depressed sales.

NWL started looking for potential buyers of the business as far back as December, 2006. Despite its efforts, NWL has been unable to locate either a buyer, infusion of cash, or additional loans. Faced with such constraints, NWL sought “financial flexibility” by filing for bankruptcy (read the National Wholesale Liquidators Bankruptcy Declaration here).

The Agreement to Sell or Liquidate

Pursuant to NWL’s agreement with its lenders, it must either sell or liquidate its business by November 26, 2008. Under the agreement, NWL received $7,000,000 in interim financing NWL to cover various expenses during bankruptcy. Such expenses include paying landlords, employees and other parties essential to maintaining NWL’s business while it finds a buyer or achieves an orderly liquidation.

Issues Important to Landlords

In the days ahead, we will know whether NWL found a buyer or was forced to liquidate. NWL’s landlords are one of the many creditor constituencies who have an interest in the outcome. If NWL finds a buyer, its landlords will want to know whether their leases are being assumed and assigned to a third party, or rejected. If assumed, landlords will want to insure any defaults under theirs leases are properly cured. Alternatively, those landlords with rejected leases will want to properly file rejection damage claims.

The NWL bankruptcy was assigned to the Honorable Mary F. Walrath, a former Chief Judge of the Delaware Bankruptcy Court.