After shedding three stores and one-fourth of its employees, and securing $1.3 million in new financing, Tattered Cover is on track to emerge from bankruptcy before long.
Testifying under oath at a bankruptcy hearing Friday afternoon, CEO Brad Dempsey said the bookstore chain, which filed for Chapter 11 in October, intends to be out of bankruptcy “at the beginning of next year.”
That expedited timeline is made possible by the closure of stores in LoDo, Westminster and Colorado Springs, according to Dempsey, who is also a bankruptcy attorney. The company’s permanent staff has shrunk from 103 to 74, not counting eight seasonal workers.
“The closure of the three stores is important because it reduces the amount of inventory we need to finance,” Dempsey said. Books from those stores have already been shipped to the remaining four locations and all furniture will be moved out by Monday, he added.
“Unfortunately, we have laid off a number of employees from those (closed) stores,” Dempsey said. “It is regrettable but necessary to maintain a future for the company.”
The CEO, who took over on an interim basis in July and full time in October, spoke alongside Tattered Cover Chief Financial Officer Margie Keenan at a meeting of creditors, a bankruptcy proceeding in which executives field questions after swearing to tell the truth.
Dempsey and Keenan were quizzed about the cause of Tattered Cover’s bankruptcy and the company’s future. They explained that its debts had reached a point that it had to buy books at a markup and couldn’t afford to buy enough for the crucial holiday season.
“The plan is to reorganize the business by reducing expenses, reducing the size and drawing new investments from current and new investors,” Dempsey said.
“At this point, there is no sale contemplated for the company.”
Chapter 11 allowed Tattered Cover to stanch its financial bleeding and secure a bankruptcy loan, known as debtor-in-possession financing, or DIP financing, he said. That was obtained Thursday, when U.S. Bankruptcy Judge Michael Romero granted the company permission to borrow $1.3 million from Read Colorado LLC, a company founded last month.
Read Colorado was created by Dr. Leslie Rainbolt and philanthropist Margie Gart, whose family sold a sporting goods chain to Sports Authority, in order to help Tattered Cover.
Dempsey and Keenan were also asked Friday about $198,000 that Tattered Cover may owe to former CEO Kwame Spearman, who left the company to run for political office this year.
“In the spring of 2022, when we were opening our location in Colorado Springs, he paid for some lumber to build bookcases,” Keenan said. “It was a bigger amount than we were able to fund, so he paid out of pocket for it. He also loaned some money to the company in the spring of 2022 to cover a gap when we were trying to buy inventory.”
Tattered Cover lists the $198,000 among its debts but calls that figure “disputed.”
“These (cash) advances by Mr. Spearman were not really documented with the company,” Dempsey said. “There was no promissory note with respect to that.”
This story was reported by our partner BusinessDen.
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