Special agent accuses Hudson’s Bay of stripping assets

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Richard Baker, CEO of Hudson’s Bay (Photo credit: Getty; iStock)

The special duty agent for an $ 850 million CMBS deal accused the Hudson’s Bay Company of engaging in a “clandestine business shell game” by depriving the operator of the department store, a decision that undermined the creditworthiness of the loan, which now faces a default. And as with many other real estate-related court cases in recent times, Covid-19 is at the center of concern.

The CMBS loan provided by JPMorgan Chase, Bank of America and Column Financial is guaranteed by 24 Lord & Taylor stores and 10 Saks Fifth Avenue stores in 15 states. As the parent company of the two brands at the time, Hudson’s Bay was the tenant of all 34 stores and part-owner through a joint venture with mall operator Simon Property Group.

Hudson’s Bay was also responsible for the payment of store rents. But in recent months, the now private company “has engaged in deliberate and covert corporate restructurings which have taken assets” from the original parent company and “transferred them to newly formed foreign entities.” , said the Situs special service in its federal lawsuit against Hudson’s Bay. This alleged action violated “the loan documents and related guarantees,” according to the complaint, filed Monday in New York on behalf of the CMBS trust.

The lawsuit also accuses Hudson’s Bay of misusing the coronavirus as an excuse not to address concerns about the transfer of assets, which it called “an opportunity to try to cover up their many violations of the law. their obligations ”. A number of real estate-related lawsuits have emerged in recent weeks alleging that defendants are improperly using Covid-19 as an excuse to break signed agreements or terminate leases. In late February, Hudson’s Bay shareholders approved the decision to privatize the company in what was seen a few months earlier as a $ 1.3 billion transaction.

Hudson’s Bay said it dismissed the prosecution’s charges. In a statement, a spokesperson for the company said the Simon Property joint venture was the borrower on the loan while Hudson’s Bay was “merely a guarantor of the lease obligations” under the joint venture. “To suggest that HBC violated the loan document provisions is categorically false,” the spokesperson added.

“Empty shell”
Situs says he only discovered the alleged scheme in April after Hudson’s Bay fell behind on rent payments. Following negotiations to fill the shortfall, Situs says he was informed that a signature block on a document needed to be amended because the Hudson’s Bay Company, the entity that guaranteed the rent payments, no longer existed.

In its place, according to the lawsuit, was “an empty shell” called the Hudson’s Bay Company ULC, all of whose assets and liabilities had been transferred to a Bermuda-based limited partnership whose general partner is controlled by the CEO of Hudson’s Bay, Richard Baker, and whose limited partners include the Abu Dhabi Investment Council.

Situs says these transfers were inappropriate because the loan documents required the CMBS trust to approve – or at least be informed – of the transactions. Hudson’s Bay, for its part, says the restructuring was “driven entirely by tax considerations” and that the maintenance officer’s concerns are “irrelevant distractions,” according to correspondence included in the lawsuit.

But Situs claims that “the defendants simply do not have the right to willfully and covertly violate contractual restrictions on such corporate maneuvers and then, when caught, declare that all is well.”

Situs did not respond to a request for comment.

The CMBS loan was transferred to the special department on April 23, “due to the borrower not making the April debt service payment,” according to the manager’s commentary provided to Trepp.

The special duty officer is now seeking a declaratory judgment to quash the allegedly inappropriate transfers, a temporary restraining order prohibiting Hudson’s Bay from engaging in further restructuring and transfers, and an order accelerating discovery for documentation of transfers.

Situs has reported that Lord & Taylor may liquidate its stores when it reopens following nationwide coronavirus-related closures, and that Hudson’s Bay may attempt to acquire bankrupt rival Neiman Marcus.

Hudson’s Bay sold Lord & Taylor to Le Tote clothing rental service last August for $ 100 million, but remains the guarantor of rental payments on the Lord & Taylor properties in the loan portfolio.

Locations of the 34 stores included in the CMBS operation.  Source: Trepp

Locations of the 34 stores included in the CMBS operation. Source: Trepp

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