Chapter 11 Bankruptcy Filing: Home Depot’s Rival Faces Financial Crisis

According to The Street, The home improvement retail industry has encountered significant economic challenges over the past two years, largely due to inflation, rising interest rates, and the conclusion of the COVID-19 pandemic.

Surge in Demand During the Pandemic

During the pandemic, when millions were confined to their homes to mitigate the spread of the virus, there was an unprecedented surge in consumer demand for home renovations and repairs. With ample time at home, many individuals engaged in home improvement projects to pass the time. This resulted in a temporary boost in business for home improvement retailers. However, as normalcy returned, companies that had been teetering on the brink before the pandemic faced harsh financial realities.

The Closure of Kelly-Moore Paints

One notable casualty of the pandemic’s aftereffects is Kelly-Moore Paints, a historic paint retailer that shut down all 157 of its retail locations in January 2024. The Irving, Texas-based company, founded in 1946, cited a heavy financial burden due to approximately $600 million in asbestos claims settlements, the looming risk of additional future claims, and long-standing supply chain issues exacerbated by the pandemic as reasons for its closure. Kelly-Moore did not pursue Chapter 11 bankruptcy reorganization or Chapter 7 liquidation, stating it lacked the capital to continue operations.

LL Flooring Enters Bankruptcy

Another major player in the home improvement sector, LL Flooring, filed for Chapter 11 bankruptcy protection on August 11 in the U.S. Bankruptcy Court for the District of Delaware. The company is seeking to sell its assets after experiencing broad challenges in the housing, repair, and remodeling markets following the pandemic. As part of the bankruptcy process, LL Flooring has also requested permission to close and liquidate 94 of its 442 stores across the nation.

According to Chief Restructuring Officer Holly Etlin of AlixPartners, LL Flooring’s liquidity constraints had reached unsustainable levels. Attempts to sell its Sandston, Virginia distribution center to alleviate liquidity issues were unsuccessful. The company had sought a buyer for its entire operation but, due to its financial constraints, lacked sufficient time to finalize a deal prior to filing for bankruptcy.

The Path Forward for LL Flooring

If LL Flooring cannot secure a buyer during the bankruptcy proceedings, it may be forced to liquidate its retail stores and other assets. The company reported assets valued between $500 million and $1 billion and liabilities ranging from $100 million to $500 million in its bankruptcy petition. This includes approximately $109.6 million in total funded debt, comprising around $99 million owed under a prepetition asset-based lending facility and $10.6 million in outstanding letters of credit.

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To support its operations during the bankruptcy process, LL Flooring is seeking approval for $130 million in debtor-in-possession (DIP) financing. This financing plan includes a $12 million letter of credit sub-facility and a rollup of $10.6 million in prepetition letters of credit from lenders Bank of America (BAC) and Wells Fargo Bank (WFC).

Originally established as Lumber Liquidators by contractor Tom Sullivan in 1994, LL Flooring changed its corporate name on January 1, 2022, following a $33 million settlement over securities fraud allegations. Despite these setbacks, LL Flooring was recognized as the top U.S. hardwood flooring retailer by U.S. News and World Report in April 2024, operating approximately 442 locations across 46 states.

Conclusion

The current economic climate has posed substantial challenges to the home improvement retail industry, forcing established companies like Kelly-Moore Paints and LL Flooring to confront harsh realities in a post-pandemic world. As these businesses navigate financial turbulence, the future of the home improvement retail sector remains uncertain.