How Party City Entered and Emerged From Bankruptcy

In recent years, some of our fellow New Jersey businesses have filed a Chapter 11 bankruptcy only  to convert to a Chapter 7 in order to liquidate. Popular retailer Party City managed to avoid this trend in 2023 by concluding their reorganization and exiting having reduced their debt by approximately $1 billion.

The way that Party City entered and emerged from bankruptcy has been a mixture of standard practices and an approach tailor-made for a retailer focused on party supplies. The result is an approved reorganization plan that has dramatically cut the company’s debt and provided a path forward.

Challenges Facing Party City

Since 2019, the company has faced a wide range of financial challenges. Some of these issues were common among retailers across the board. The COVID-19 pandemic hit the company hard, and the uncertainty it temporarily produced around the global supply chain dramatically increased costs.

While the pandemic impacted many businesses, it was devastating to a company that is built around providing supplies for social gatherings. According to RetailWire, the company saw their earnings (before interest and taxes) drop from $118.5 million at the end of 2019 to only $2.4 million in the third quarter of 2022.

Other issues were specifically damaging to a company like Party City. Chief among these was the 2019 helium shortage, which ran up costs and made it difficult for the company to fulfill key elements of its business.

Party City Files for Chapter 11 Bankruptcy Protection

In January of 2023, the company filed for protection under Chapter 11 of the bankruptcy code. The filing, which occurred in the Southern District of Texas, involves the holding company for Party City. It is worth noting that this did not impact many of the other businesses under the company’s umbrella, including franchise and international stores.

CEO Brad Weston remained in place throughout the nearly nine-month bankruptcy process. Along the way, the company continued to operate its domestic stores. After the restructuring plan was accepted by the judge, the company exited bankruptcy in September. Weston stepped down from the role of CEO, handing off to company president Sean Thompson in an interim capacity.

Emerging Stronger

Party City exited bankruptcy with substantially less debt on its books than before. In addition to reducing what it owed by roughly $1 billion, the company also has taken steps to slim down their operation. This starts with closing many underperforming stores.

A major part of their plan moving forward is the next-generation concept for their retail stores. Their goals are to improve convenience, cut waste, and renovate stores to provide an updated look to consumers. This new concept has largely been implemented by renovating current store locations instead of expanding. Concepts like dedicated checkout lanes for balloon customers appear to be successful, with an improvement in sales in these locations.

Talk to an Attorney About the Possibility of Bankruptcy for Your Business

The way that Party City entered and emerged from bankruptcy could be studied by other business owners facing the prospect of reorganization or liquidation. While it remains to be seen if their approach pays off in the long run, reorganization put the company in a position where they can attempt to return to their position at the top of market for party supplies and holiday planning.

If you are facing the prospect of bankruptcy, now is the time to seek out legal counsel with the experienced bankruptcy attorneys at Gillman, Bruton & Capone. While this process might seem daunting, it could also be your best chance at staying in business in the long-run. We can also work with creditors to help them file a Proof of Claims when a business files for bankruptcy.

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