Hudson’s Bay Company store landlords are pushing back against a proposed agreement that would give the retailer’s senior lenders greater control over its financial restructuring.

Landlords’ lawyers argued in a court hearing Thursday that such permission could jeopardize the company’s future, The Globe and Mail reported.

An agreement between Hudson’s Bay and its lenders—Bank of America N.A., Pathlight Capital LP, and Restore Capital LLC—would impose restrictions on the company as it liquidates most of its stores while attempting to devise a restructuring plan, landlords’ lawyers told Justice Peter Osborne. The deal, if approved by the court, would require Hudson’s Bay to abide by a strict budget and prove by April 7 that it has a viable path forward, such as a buyer for part of the business. Otherwise, the six stores currently exempt from liquidation would begin clearance sales on April 8.

David Bish, a lawyer with Torys LLP representing Cadillac Fairview Corp., one of Hudson’s Bay’s key landlords, strongly opposed the agreement, calling it a “Trojan horse” that threatens the retailer’s ability to salvage part of its operations, according to the Globe.

“What you have before you offers no benefit at all to HBC,” Bish told Osborned, according to the Globe.

The lenders’ legal team argued that the restrictions were necessary to protect their interests, as Hudson’s Bay continues to operate stores and sell inventory over which they hold a security interest. They claimed that without the agreement, the company’s spending could erode its ability to repay its debts.

However, Bish dismissed this argument as “a complete fiction,” stating that Hudson’s Bay would face the same operating expenses even if it opted for full liquidation, the Globe reported.

The lenders have warned that without the agreement, they would seek a court order to place Hudson’s Bay in receivership. Bish called that a hollow threat, suggesting the court might not grant such a motion.

Cadillac Fairview, which leases space to Hudson’s Bay at 16 locations, was joined by other major landlords—including RioCan Real Estate Investment Trust, Oxford Properties, KingSett Capital, Morguard, and Cushman & Wakefield—in opposing the agreement.

Hudson’s Bay obtained court protection from creditors on March 7 under the Companies’ Creditors Arrangement Act. The Globe previously reported that the company initially sought to save about half of its 80 department stores through concessions from landlords, including rent reductions and investment commitments, but those negotiations fell through.

Linda Galessiere, a lawyer with Camelino Galessiere LLP representing multiple landlords, argued that unlike the lenders, landlords were never asked to provide secured emergency debtor-in-possession financing. Instead, she said, landlords were essentially asked for a “donation” to keep the company afloat, according to the Globe.

Following the failure of those discussions, Hudson’s Bay received court approval last week to begin liquidation sales at all but six of its stores, three each in the Greater Toronto and Montreal areas. On Monday, 74 Hudson’s Bay locations, along with two Saks Fifth Avenue stores and 13 Saks Off Fifth stores, started clearance sales.

Hudson’s Bay is reviewing bids and aims to finalize a sale by the end of April.

However, the April 7 deadline in the restructuring support agreement does not align with Hudson’s Bay’s internal sales timeline, the Globe reported. Linc Rogers, a lawyer representing Restore Capital, said during Thursday’s hearing that the lenders are open to extending the deadline to the end of April if needed, the Globe reported.

But without an agreement in place, he warned, the lenders would push for receivership.

Hudson’s Bay is Canada’s oldest company, dating back to the fur trade era in the 1600s.

Pictured: Hudson’s Bay store in Montreal.

Photo: meunierd / Shutterstock.com

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