Hudson's Bay Company nearly $1B in debt, with court filings painting dire financial portrait

Hudson's Bay Company is nearly a billion dollars in debt, according to court filings that paint a dire portrait of the struggling Canadian department store chain's finances. 

The documents were submitted as part of its creditor protection filing last week. The company owes a total of $950 million to nearly 2,000 secured and unsecured creditors, including well-known apparel and beauty brands like Adidas Canada, Estée Lauder, L'Oréal Canada, Levi Strauss Canada, Michael Kors Canada, Nike Canada and Ralph Lauren.

"The scale is certainly monumental for insolvency proceedings as far as Canada goes. It's a very large one," said Dina Kovacevic, editor-in-chief of Insolvency Insider Canada. But it's not a surprise, she said.

"Retailers in the last several years since the COVID pandemic have really been having a hard time with less foot traffic and all of the economic issues that have been going on in the world. So while it is monumental, I think we were probably expecting it. There have been a lot of retailer filings in the last several years."

The company owes more than $1 million to Canada Post, and is in debt to over a dozen municipalities. The list doesn't include the debt amount owed to some government agencies, figures that the filing says are unknown at this time. The amount owed to employees is to be determined, per the filing.

At the beginning of the year, Hudson's Bay had just $3 million in cash and cash equivalents, the documents show. The $1.1 billion it owes in secured debt includes $724.4 million in mortgages.

Secured creditors are lenders, like banks, which give out loans to companies. To ensure they are paid back, the creditor takes on some of the company's assets as collateral. Unsecured creditors are usually employees and suppliers, "and unfortunately they tend to be at the bottom of the food chain, so to speak," said Kovacevic.

"For any employees that get terminated throughout the process, unfortunately their termination and severance pay will be an unsecured claim, which means that they will likely receive cents on the dollar for those claims," she explained.

'The worker always comes out last'

The Bay announced last week that it was seeking creditor protection, with its chief executive pointing to the COVID-19 pandemic and an ongoing trade war with the U.S. as external factors that have put financial pressure on the company.

Some experts say The Bay's decline began long before the pandemic, tracing its issues back to its 2008 acquisition by the American investment firm NRDC Equity Partners, and saying that the company's new ownership prioritized its real estate over a cohesive retail strategy.

The company's lack of investment in its stores became evident in recent years, with floors understaffed, escalators and elevators in disrepair and faulty HVAC systems leading to temporary closures last summer. 

"I was in just before Christmas, and there are large parts of the floor that weren't stocked with anything, and it didn't have the hum of Christmases past," said Lawrence Archer, a Toronto resident who was leaving The Bay with a shopping bag in each hand.

"I feel sorry for the employees," he added. "I've just talking to several of them inside there and they're worried. The worker always comes out last in these sort of situations."