On the latest episode of Fresh Start, Hilco Merchant Resources president Ian Fredericks discussed the business of liquidation in Chapter 11.

Fredericks explained the nuts and bolts of a liquidation in bankruptcy and dug into the way the outbreak of Covid-19 contributed to many of the liquidations seen last year.

“There was tremendous uncertainty about how consumer behavior was going to be,” he said, as well as questions about whether the massive migration to e-commerce seen from March to May 2020 would be permanent.

As a result, lenders became uncomfortable with the collateral packages and wanted to run liquidation sales as soon as that became possible. Additionally, he said, landlords have become more aggressive in state court, driving an increase in liquidations in Chapter 11.

Fredericks also said the pandemic drove a return to requests for so-called guarantee bids from liquidators, meaning that the liquidators guaranteed their appraisals, a request that hadn’t been seen since 2017 and which most of the time they weren’t able to offer.

“I think lenders realized we had the benefit of this guarantee appraisal, and we didn’t use it for so long that when all of a sudden they needed it they essentially couldn’t go get it because they had ignored it for so long,” he said.

Although retailers are again open for in-person shopping, business for them hasn’t returned to 2019 levels, Fredericks said.

“Some retailers are still probably down on a top-line sales basis as much as 20% or more up against their 2019 numbers,” he said. “Very few that were drastically down in 2020 have returned to their 2019 base case.”

Listen to the end to hear Fredericks’ prediction for retail in the fourth quarter; a recounting of the Aéropostale Inc. deal, when Hilco was part of a consortium that actually prevented the retailer for liquidating; and his thoughts on why so many liquidation firms are teaming up on bids.

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