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Friday, 20 March 2015 16:42

Family Christian Stores likely to get new owners in bankruptcy sale

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National retailer Family Christian Stores will likely have new owners in the next 60 to 90 days following a bankruptcy hearing in Grand Rapids yesterday.

The potential ownership change, which would be the second in the last two years for the religious retailer, was one of the primary outcomes at the hearing in federal bankruptcy court for parent company Family Christian LLC.

Attorneys for the seller of Christian books and gifts were in the Western District of Michigan Bankruptcy Court to discuss the company’s ongoing bankruptcy proceedings. Toward the end of the hearing – which included nearly 20 lawyers representing both Family Christian and dozens of creditors – it became clear that the next step in the case will include a sale of its assets.

[RELATED: Family Christian's Next Chapter: Niche retailer emerges from bankruptcy with plan for modest growth and profitability]

“The debtor sees its long-term success through a 363 sale,” said attorney Todd Almassian, referring to Section 363 in the bankruptcy code that outlines a process for selling off assets. Almassian is a partner at Grand Rapids-based Keller & Almassian PLC which is representing Family Christian in the bankruptcy.

A hearing on April 14 is expected to determine the bidding and auction process, after which Judge John T. Gregg said he would strongly consider motions to sell Family Christian’s assets.

A change in ownership could mean store closings, a reduction in headcount and other operational changes at Family Christian Stores, according to a bankruptcy and turnaround specialist MiBiz spoke with who asked not to be identified. Family Christian operates 266 brick-and-mortar stores in 36 states.

However, any operating changes would likely be dictated by the company’s cash flow, which should improve in the absence of the significant debt service that had strapped Family Christian’s operations in recent years, the source added.


The rather conciliatory nature of yesterday’s hearing was a far cry from how talks began in First Day hearings last month.

At that time, it was revealed that a stalking horse bidder — a person appointed by a distressed company to make an initial bid for the company’s assets — was thought to be Family Christian’s current chairman Richard Jackson, who was part of a group of three executives who bought the company in 2012. The concern stemmed not only from Jackson’s involvement as the stalking horse bidder, but also as the debtor and senior lender through FC Special Funding LLC, another entity thought to be under his control.

Jackson, an entrepreneur, is also the founder and CEO of Atlanta-based Jackson Healthcare Inc., a health care staffing company.

Creditors objected to the apparent close nature of Jackson to all parties in the case and deemed the process to be less than transparent.

In light of that concern, Gregg initially set out to slow down the sale proceedings, he said at the Thursday hearing.

As MiBiz reported earlier this week, attorneys representing Family Christian ultimately withdrew their motion for a 363 sale to the stalking horse bidder affiliated with Jackson.

“The stalking horse bidder felt they were becoming more of an impediment in the process, which is not their intention or desire,” said Brad Baldwin, an Atlanta-based attorney at Burr & Forman LLP who represents Family Christian. “They decided that rather than being an albatross around the debtor’s neck, they thought it would be best to step away at this time to remove any taint or questions regarding the process and to open up and allow folks who may or may not have an interest in exploring the interests of the debtor had the stalking horse been in place.”

Despite the concerns, Gregg said there was no specific problem with an insider participating in the stalking horse process, so long as the involvement is disclosed.

“There was a very close relationship that was not disclosed until the First Day hearings, but it’s out there now and none of the lenders, the debtors, the ultimate parent or the former stalking horse is viewed as being a taint or impediment to this process,” Gregg said.


By shifting from a sale plan that included a stalking horse from the inside to the plan laid out on Thursday, experts say the company has moved into more tested waters within the bankruptcy process.

“Now that it’s rounding out at this point, it’s a fairly standard position they are taking — moving down to what I would call a typical 363 sale,” said David Lefere, an attorney at Grand Rapids-based Mika Meyers Beckett & Jones PLC focused on corporate business law and commercial disputes. Lefere is not involved in the Family Christian case.

“They obtain set bid procedures from the court … as opposed to bringing a stalking horse bidder to the court that, in this situation, seemed to be a related party,” he said.

Lefere said he thought less than 60 days seemed to be an ambitious timeline for the sale, and that 60 to 120 days was more likely.

Motions approved yesterday by Gregg included approval for Family Christian to retain Brookwood Associates LLC, an Atlanta-based investment banking firm that will help market the company. Family Christian will also retain Atlanta-based turnaround firm Resurgence Financial Services LLC to act as a financial adviser.

Representatives at Brookwood, Family Christian, Jackson Healthcare and several attorneys involved in the case did not return calls or declined to comment. An executive at Resurgence Financial was unable to comment before this story went to press.


Many of Family Christian’s financial problems can be tied to the retailer’s long-term debt as well as shifts in the industry.

As MiBiz has previously reported at the time Family Christian filed for bankruptcy in February, the retailer reported cash-on-hand of approximately $50,000 and debts between $50 million and $100 million.

“The previous owners had so much debt that when the stores went down, they had enough to take care of themselves, but they couldn’t pay for the debt," Jackson said in an interview with The Christian Post in February. “So we took it on; we were too positive thinking, and tectonic trends — people going online not going to brick-and-mortar stores — brought sales down 10 to 20 percent, just like Borders.”

The Christian retailing industry has struggled in recent years to stanch the bleeding of sales related to shifts in consumer habits, according to industry groups. While sales were up 2.9 percent in 2013, the industry still suffered a net loss of 49 stores, according to an annual report last year from the Association for Christian Retail.

Across the industry, books and bibles accounted for about 60 percent of store sales, according to the report. At the same time, those products are now more widely available at mainstream retailers, which has cut into industry sales.

Similar to other trends in the broader independent bookstore industry, Christian retailers also lost a “significant percentage of their revenue” as customers shifted to buying music online, according to a 2011 report in Publishers Weekly. Some Christian retailers maintained as much as 50 percent of their inventory in music, the report stated.


It remains unclear who may step up as a buyer for Family Christian, or whether current chairman Jackson will be involved in the bidding. Family Christian’s lawyers working on the proceedings could not confirm Jackson’s interest in submitting a bid for the company.

Lefere from Mika Meyers said that in a case like this, a competitor looking to add on assets affordably would be a likely outcome. However, he did not rule out the possibility that a private equity firm or other private investor from the market may also have interest in the company.

If no satisfactory bid is made in the sale process, the judge could order a liquidation of the company or he could ask the parties to try to negotiate another reorganization plan, according to an expert MiBiz spoke with on the condition of anonymity.

However, attorneys working on the proceedings said that now that all parties have adequate representation and their intentions have been made transparent, the case is expected to move forward without significant, foreseen interruption.

“The process now allows dialogue between all the constituencies to examine all options,” Almassian said.

– MiBiz Editor Brian Edwards contributed to this report

Read 19261 times Last modified on Wednesday, 30 December 2015 11:40

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