Leslie's - Chapter 11 Case Summary
Leslie's filed for Chapter 11, attributing its distress to a contraction in the U.S. pool and spa care industry, inflationary input costs, unfavorable weather in key markets, and aggressive big box and online competition, with EBITDA falling from approximately $270.0 million in the third quarter of 2021 to $40.0 million in the first quarter of 2026. The company enters Chapter 11 with a restructuring support agreement signed by holders of approximately 81% of its term loan claims. The proposed plan would reduce funded debt by more than $685.0 million. The case will be funded by a $90.0 million new money DIP term loan and a $225.0 million DIP ABL rolling up the existing prepetition ABL facility, and a $60.0 million equity investment backstopped by certain of the consenting term lenders will be funded at emergence.
Business Description
Headquartered in Phoenix, Arizona, Leslie's, Inc. ("Leslie's"), together with its debtor subsidiaries (collectively, the "Debtors" or the "Company"), is a direct-to-consumer brand in the U.S. pool and spa care industry, serving residential, professional, and commercial customers nationwide.
The Company operates an omni-channel platform comprising more than 900 retail locations across 38 states, a direct-to-consumer e-commerce platform at lesliespool.com, and a professional services division of more than 200 in-field pool and spa care professionals providing on-site equipment installation, maintenance, and repair services. Two manufacturing facilities produce proprietary chemical products. The first-day declaration of Chief Financial Officer Jeff White (the "Declaration") refers in its introduction to four distribution centers but elsewhere to five Company-operated distribution centers, the number remaining after the operational restructuring completed in January 2026 reduced the network from six facilities to five.
Customers include residential pool owners, residential spa owners, and professional pool operators. As of September 30, 2026 (the "Petition Date"), the Company employed approximately 3,500 employees, although the Declaration's breakdown (approximately 3,000 in the physical retail network and related operations, 200 in-field service technicians, 300 in the corporate office, and 200 in the distribution centers) totals approximately 3,700.
Corporate History
Phil Leslie, Jr. founded Leslie's Poolmart, Inc. in North Hollywood, California in 1963, and with his partner Raymond Cesmat expanded it into a chain of swimming pool supply stores across the Greater Los Angeles area. The company grew over the following decades through new store openings and acquisitions of local and regional pool supply retailers, and by 2015 it operated approximately 910 stores nationwide.
In January 2017, L Catterton, a consumer-focused private equity firm, acquired a majority stake in the company. In October 2020, Leslie's, Inc. completed its initial public offering on the Nasdaq Global Select Market under the ticker symbol "LESL." The Company continued to pursue growth by expanding its store footprint to over 1,000 locations, enhancing its digital capabilities, and broadening its service offerings through acquisitions of other pool supply businesses. Stellar Manufacturing LLC ("Stellar") was acquired in September 2022.
Corporate Structure and Equity
Each of the Debtors is a subsidiary of Leslie's, a publicly traded Delaware corporation that serves as the holding company and has no employees or independent operations. As of the Petition Date, approximately 9,377,657 shares of Leslie's common stock were outstanding and traded on the Nasdaq Global Select Market. Ownership runs as follows: Leslie's owns 100% of the voting securities of Leslie's Poolmart, Inc. ("Leslie's Poolmart"); Leslie's Poolmart owns 100% of the voting securities of Cortz, Inc. ("Cortz"), RAM Chemical & Supply, Inc. ("RAM Chemical"), LPM Manufacturing, Inc. ("LPM"), Horizon Spa & Pool Parts, Inc. ("Horizon"), and Stellar; and Cortz owns 100% of the voting securities of Pool Parts, Inc., SPP Holding Corporation, and Hot Tub Works, LLC.
Leslie's Poolmart — the main operating subsidiary, running the nationwide network of over 900 specialty retail stores, five distribution centers, and the proprietary e-commerce platforms LesliesPool.com, the Company's mobile app, and the In The Swim website. It owns substantially all of the Debtors' operating assets, including leases, inventory, and trademarks, and is the legal entity on all of the Debtors' employment agreements. It is also the borrower under both prepetition credit facilities.
Cortz — the former operator of In The Swim, the e-commerce brand that sold pool-related chemicals, equipment, and accessories. Cortz continues to hold In The Swim's trademarks and website domain, the Amazon and Walmart agreements, and select specialty chemical and pool supply trademarks.
LPM — critical to the proprietary chemical division, managing proprietary branded chemicals produced by Stellar and others produced at Leslie's Poolmart's other manufacturing facility.
Stellar — operates the chemical tolling and contract manufacturing business, specializing in chlorine tablet production and compact granulation; its products have also been sold for use in janitorial sanitization, industrial chemical, and municipal water treatments.
Horizon — the wholesale specialty pool and spa parts distributor, which also offers a technical support team.
RAM Chemical — the tenant on certain of the Debtors' leases.
Pool Parts, Inc., SPP Holding Corporation, and Hot Tub Works, LLC — defunct entities with no material assets or intellectual property.
The board of directors of Leslie's comprises John Strain (Chairman), Yolanda Daniel, Seth Estep, John Hartmann, Lorna E. Nagler, Maile (Clark) Naylor, Susan O'Farrell, Claire Spofford, and Jason McDonnell, Chief Executive Officer. The executive leadership team is Jason McDonnell (Chief Executive Officer), Jeff White (Chief Financial Officer & Treasurer), Benjamin Lindquist (SVP, General Counsel & Corporate Secretary), Amy College (Chief Merchandising and Supply Chain Officer), Naomi Cramer (Chief Retail Operations and Talent Officer), and Maryann Byrdak (SVP, Chief Information Officer).
Operations Overview
The Company operates in the aftermarket pool, hot tub, and spa care industry across four lines: chemicals; equipment, parts, and accessories; the "Hot Tubs" division; and services. Its product range spans more than 25,000 products across chemicals, equipment and parts, cleaning and maintenance equipment, and safety, recreational, and fitness-related categories. Through five Company-operated distribution centers, the Debtors have vertically integrated numerous aspects of their supply chain, packaging, and distribution model.
Chemicals
Chemical products represent approximately 50% of the Debtors' sales. The chemical line includes chlorine products such as sanitizers and shocks, pH adjusters, specialty chemicals, and filter cleaners, manufactured and packaged at both company-operated facilities and third-party contract packaging facilities. The distribution centers facilitate the end-to-end manufacturing-to-sales process for these products.
Equipment, Parts, and Accessories
Equipment and parts collectively represent approximately 40% of sales, the majority generated through brick-and-mortar retail locations and supplemented by e-commerce channels including third-party marketplaces and the Company's proprietary website. The offering spans single-speed and variable-speed pumps; cartridge, sand, and diatomaceous earth filters; gas heaters and heat pumps; salt chlorination systems; LED lighting; automation and control systems; and automatic pool cleaners across suction, pressure, and robotic categories. Through Horizon, the Debtors operate a wholesale specialty parts distribution business offering filter elements, pump components, heater parts, and hard-to-find replacement items to professional pool service companies and retailers nationwide.
Hot Tubs Division
The Hot Tubs division comprises eight portfolio companies (Aqua Quip, Oregon Hot Tub, International Hot Tubs, Spring Dance Hot Tubs, Capital Hot Tubs, Valley Pool & Spa, Pool City, and Splash Pools and Spas) that collectively operate approximately 50 stores across 10 states. Revenue comes primarily from sales of hot tubs and spas, including swim spas, saunas, modular pools, and cold plunge products, supplemented by delivery, installation, repair, maintenance, and water treatment services, along with chemicals, filters and parts, and covers and accessories.
Services
The in-field service network of more than 200 technicians provides on-site equipment installation, maintenance, and repair for residential consumers and professional pool operators across the United States. Customers receive complimentary, commercial-grade in-store water testing and analysis through the proprietary AccuBlue® system, and the Debtors continue to assemble an affiliated network of qualified pool professionals through their PRO Partner program.
Seasonality and Working Capital
The majority of selling occurs during "pool season," generally running from late spring to early fall, making the beginning of each calendar year the most significant period for purchasing inventory. The Company structures its business around the April through September season by negotiating extended payment terms with suppliers to receive merchandise from December through March and paying for that merchandise from April through July. Locations generally open ahead of peak selling season and close after it ends, at which point preparations begin for the next season.
Prepetition Obligations
As of the Petition Date, the Debtors had approximately $787 million in aggregate outstanding principal amount of funded indebtedness, all secured.
| Funded Debt | Approximate Principal Outstanding |
|---|---|
| Prepetition ABL Facility | $30 million |
| Prepetition Term Loan Facility | $757 million |
| Secured Debt Total | $787 million |
Prepetition ABL Facility
Leslie's Poolmart, as parent borrower, together with Cortz and LPM as subsidiary borrowers and Leslie's as holdings, is party to a Credit Agreement dated October 16, 2012, amended seven times through Amendment No. 7 dated April 3, 2024 (the "Prepetition ABL Credit Agreement"). Bank of America, N.A. serves as administrative agent and co-collateral agent, with U.S. Bank National Association as co-collateral agent.
Size: $250 million asset-based revolving credit facility, with approximately $30 million of loans outstanding at the Petition Date.
Maturity: April 3, 2029, subject to a springing maturity date of December 9, 2027 if the Prepetition Term Loan Facility has not been extended or repaid in full by that date.
Guarantors and collateral: guaranteed by Horizon, Hot Tub Works, Pool Parts, RAM Chemical, SPP, and Stellar, and secured by a lien on substantially all of the Debtors' assets other than certain subsidiary equity interests, intellectual property, and vehicles, among other standard excluded assets.
Prepetition Term Loan Facility
Leslie's Poolmart is the borrower under an Amended & Restated Term Loan Credit Agreement dated March 9, 2021, as amended by Amendment No. 1 dated June 8, 2023 and the Resignation, Consent and Appointment Agreement dated November 14, 2025, with Alter Domus (US) LLC as administrative and collateral agent.
Size: $810 million secured term loan facility, with approximately $757 million of principal outstanding at the Petition Date.
Rate: Adjusted Term SOFR plus 2.75% per annum for Term SOFR loans and 1.75% per annum for ABR loans.
Maturity: March 9, 2028.
Guarantors and collateral: guaranteed by Horizon, RAM, Stellar, Pool Parts, Hot Tub Works, SPP, LPM, and Cortz, and secured by a lien on substantially all of the Debtors' assets other than certain subsidiary equity interests, certain real estate, and vehicles, among other standard excluded assets.
Intercreditor Arrangements
An Intercreditor Agreement dated August 16, 2016 fixes the relative priority of the liens securing the two facilities. The ABL secured parties' lien on inventory, accounts receivable, deposit accounts, cash, credit card receivables, and related proceeds (the "Prepetition ABL Priority Collateral") has priority over the term loan secured parties' lien on those same assets. The term loan secured parties' lien on the Debtors' remaining assets (the "Prepetition Term Loan Priority Collateral") has priority over the ABL secured parties' lien thereon.
Events Leading to Bankruptcy
Industry Contraction and Demand Normalization
The Declaration attributes the Company's distress to a pronounced contraction in the U.S. pool and spa care industry beginning in 2023, driven by a normalization of demand following elevated pandemic-era spending on home improvement and outdoor living; persistent inflationary pressure on input costs including chemicals, energy, and transportation; a contraction in consumer discretionary spending as interest rates rose and household budgets tightened; unfavorable weather in key markets that shortened pool seasons and suppressed demand for maintenance chemicals; and increased competition from big box and online marketplace retailers.
The pandemic-era surge itself had been driven by increased consumer investment in home improvement and outdoor living amenities, new pool installations, and concerns about product availability, which the Declaration attributes largely to a fire at a chlorine production facility in August 2020. As conditions deteriorated, high interest rates, high inflation, uncertain tariffs, and declining consumer purchasing power and confidence limited demand for pool and spa related products and services. Economic conditions also reduced the number of households eligible for new residential pools, and many customers opted for repairs rather than replacements, undercutting potential new sales to the existing customer base. Inflation simultaneously raised the Company's own costs for chemicals, energy, and transportation, limiting its ability to withstand weakening demand. The Federal Reserve's interest rate increases beginning in 2022 dampened housing market activity, reducing new pool installations and the associated demand for pool start-up chemicals and equipment.
Weather and Competition
The business is sensitive to weather: unseasonably cool temperatures or significant rainfall during the peak season reduce chemical consumption in pools and spas and depress purchases, while unseasonably early or late warm weather varies the length of the season. In fiscal years 2024 and 2025, cooler-than-normal temperatures and above-average rainfall in key pool markets shortened seasons and suppressed chemical usage.
Competitive pressure came from a fragmented field of regional and local independent retailers, home improvement retailers such as Home Depot and Lowe's, mass-market, club, and marketplace retailers such as Walmart, Costco, Amazon, and eBay, and wholesale distributors. Despite the softer demand environment, big box and online marketplace retailers were particularly aggressive on pricing, undercutting the Debtors' ability to compete. Foot traffic in retail locations declined, and both the physical and online offerings suffered from overlapping competition from mass-market retailers.
Financial Deterioration and Nasdaq Listing Issues
These headwinds had a cumulative and severe impact. EBITDA declined from a peak of approximately $270 million in Q3 2021 to $40 million in Q1 2026. The Debtors reported significant net losses and negative free cash flow in fiscal years 2024 and 2025, and Leslie's stock price fell from a high of approximately $30 per share in 2021 to below $1 per share by mid-2025. The revenue decline, coupled with a highly leveraged capital structure, placed substantial strain on liquidity and on the ability to service funded debt.
September 2025 — With the common stock trading below the $1.00 minimum bid price required for continued listing on the Nasdaq Global Select Market, shareholders approved a 1-for-20 reverse stock split, effective September 26, 2025.
February 11, 2026 — Nasdaq notified the Company that its common stock was subject to potential delisting for failure to maintain a minimum market value of publicly held shares of $15 million under Nasdaq Listing Rule 5450(b)(3)(C).
May 29, 2026 — Nasdaq confirmed the Company had regained compliance with that requirement.
September 25, 2026 — Nasdaq notified the Company that its common stock was again subject to potential delisting because, for 30 consecutive business days, the bid price had closed below the $1.00 per share minimum required under Nasdaq Listing Rule 5450(a)(1).
Self-Help Measures and Management Turnover
From October 2024 onward, the Debtors undertook a series of cost-reduction and operational efficiency initiatives: rationalizing the store footprint through closure of underperforming locations; headcount reductions and organizational restructuring at the corporate level; renegotiating vendor contracts and optimizing inventory management to reduce working capital requirements; deferring and reducing capital expenditures; and implementing pricing and promotional strategies designed to stabilize comparable-store sales trends.
The Debtors also experienced significant management turnover during this period. Between 2024 and 2025, the board appointed new executive leadership resulting in a near-complete turnover of the C-suite, including the appointment of Jeff White as Chief Financial Officer effective October 5, 2025.
On November 25, 2025, management committed to a plan to close approximately 80 underperforming stores and one distribution center as part of an operational restructuring initiative. Those closures were substantially completed by January 2026, reducing the retail footprint by approximately 80 locations across 38 states and taking the distribution center network from six facilities to five.
Negotiations with the Ad Hoc Group
After further analysis and operational assessments, the Debtors determined it was prudent to begin exploring capital structure alternatives and engaged Centerview Partners as investment banker and BRG as financial advisor. Working with counsel, on or around August 2025 the Company and its advisors began engaging with certain holders of the Prepetition Term Loans (the "Ad Hoc Group"). Discussions initially focused on an out-of-court maturity extension together with raising new money to capitalize the business and fund growth operations, and between Q4 2025 and Q1 2026 the Company ran a third-party financing process in parallel to raise new capital and position the business for future refinancing. As performance continued to face significant headwinds, the Ad Hoc Group was no longer willing to proceed with a standalone maturity extension, and the Debtors concluded that a holistic restructuring implemented through an in-court process was the optimal path forward.
Negotiations with the Ad Hoc Group, which the Declaration describes as having occurred over the fourteen months preceding the Petition Date, culminated in the execution of a Restructuring Support Agreement dated September 30, 2026 (the "Restructuring Support Agreement") among the Debtors and holders of approximately 81% of claims on account of the Prepetition Term Loans (the "Consenting Term Loan Lenders").
Chapter 11 Filing
The Debtors filed Chapter 11 in the Southern District of Texas on September 30, 2026 with a Restructuring Support Agreement already in hand. The Consenting Term Loan Lenders have pledged support for a plan of reorganization that reduces funded indebtedness by more than $685 million, provides $90 million in new money DIP term loan financing, and provides for a new $60 million equity investment backstopped by certain of the Consenting Term Loan Lenders. The prepetition ABL lenders have agreed to roll the existing ABL facility into a DIP ABL facility. The Debtors state four objectives: a substantial de-leveraging of the balance sheet with an attendant reduction of annual interest expense; optimization of costs and store footprint; raising new capital to fund working capital and ongoing operations; and implementation of certain potential growth initiatives.
DIP Financing
The DIP Term Loan Facility provides $90 million of new cash liquidity, of which $45 million will be drawn in the interim period, to fund operations and the Chapter 11 cases. The DIP ABL Facility provides up to $225 million of working capital support, which the Declaration describes as critical during the peaks and troughs of the highly seasonal working capital cycle.
Absent DIP financing, the Debtors project approximately $81 million of negative free cash flow during the 13-week period covered by the initial budget, driven primarily by the fact that the cases are filed in the non-pool season, when sales are at their lowest point of the year and the need to build inventory for the next pool season is greatest. To maintain vendor relationships in the ordinary course and cover contingencies, the Debtors believe they require minimum cash of approximately $30 million to $40 million; prior to filing they held considerably less cash than that minimum. The Declaration concludes that cash collateral alone is insufficient to fund operations and the restructuring.
DIP Term Loan Facility — Total commitment of up to $90 million, drawable in two tranches: $45 million available upon entry of the interim DIP order and $45 million available upon entry of the final DIP order. Commitments may be initially provided and funded through Jefferies Capital Services, LLC as fronting lender, with Alter Domus (US) LLC as administrative and collateral agent. Interest accrues at Adjusted Term SOFR plus 6.50% per annum for Term SOFR loans and 5.50% per annum for ABR loans, paid in kind by adding it to principal on each interest payment date, with a 0.00% SOFR floor and default interest of an additional 2.00% per annum. Maturity is the earliest of a scheduled maturity date that a drafting note in the agreed-form credit agreement sets at six months after closing (extendable by one or two months with the consent of lenders holding more than 60.01% of DIP term loans and unused commitments), consummation of a confirmed plan, acceleration, or dismissal or conversion of the cases. The facility ranks ahead of other administrative claims and is secured by liens senior to the existing prepetition liens, subject to the carve-out and certain permitted liens.
DIP premiums — The DIP Backstop Parties receive a one-time backstop premium equal to 7.00% of the DIP Term Loan Commitments, earned in full upon entry of the Interim DIP Order and payable in the form of DIP Term Loans (the "DIP Backstop Loans"). A separate upfront premium equal to 9.50% of the aggregate principal amount of DIP Term Loans actually funded by each DIP Term Lender on each funding date is earned and payable in the form of DIP Term Loans on that date (the "DIP Upfront Loans," and together with the DIP Backstop Loans, the "DIP Premium Loans").
DIP ABL Facility — A $225 million senior secured asset-based revolving facility provided by the Prepetition ABL Lenders upon entry of the Interim DIP Order, rolling up outstanding amounts under the Prepetition ABL Facility gradually upon entry of the Interim DIP Order and in full upon entry of the Final DIP Order.
Covenants — The DIP Term Loan Credit Agreement requires minimum liquidity (unrestricted cash and cash equivalents plus excess availability under the DIP ABL Facility) of $25 million as of the last day of any calendar week, and imposes cumulative variance testing over rolling four-week periods, first reported on the fifth Friday after the Petition Date, permitting unfavorable variances of no more than 20% on receipts and 15% on disbursements against the lender-approved budget.
Equity Financing
Each Prepetition Term Loan Lender that becomes a Consenting Term Loan Lender by the subscription deadline may participate pro rata in both the DIP Term Loan Facility and the equity financing, and no lender may elect one without committing to both (lenders that do, the "Restructuring Financing Parties"); lenders other than the backstop parties must return their subscription documents within 10 days after the Petition Date to be eligible. The Restructuring Financing Parties would purchase, in a direct private placement, $60 million of new common equity of the reorganized company (the "New Common Equity") representing 55.80% of the New Common Equity (the "Equity Financing"), subject to dilution on account of a post-emergence management incentive plan (the "MIP"), with proceeds used for working capital and general corporate purposes. The Equity Financing is backstopped in full by certain Consenting Term Loan Lenders (the "Equity Financing Backstop Parties"), who would receive a premium equal to their pro rata share of 7.5% of the $60 million equity amount, payable in New Common Equity comprising 4.20% of the New Common Equity, subject to dilution on account of the MIP. That premium is fully earned and nonrefundable upon entry of the order approving the disclosure statement and payable on the Effective Date.
Deleveraging and the Exit Term Loan
The plan reduces funded debt by more than $685 million principally by cancelling the approximately $757 million Prepetition Term Loan in exchange for equity. At emergence, the Company's funded debt would consist of a new $75 million term loan and a $225 million asset-based revolver.
| Facility | At Petition Date | At Emergence |
|---|---|---|
| Prepetition Term Loan | $757 million | Cancelled; holders receive 10% of the New Common Equity |
| DIP Term Loan | — | $75 million rolls into the New Term Loan; the balance, together with the DIP premiums and capitalized interest, converts into 30% of the New Common Equity |
| ABL | $30 million drawn on a $250 million facility | DIP ABL converts into a $225 million exit revolver or is refinanced by a third-party lender |
Prepetition Term Loan — Each holder receives its pro rata share of 10% of the New Common Equity, subject to MIP dilution. Lenders that also participate in the DIP Term Loan Facility and the Equity Financing receive additional equity through those channels.
DIP Term Loan — Of the $90 million DIP, $75 million converts dollar-for-dollar into the New Term Loan. The remaining DIP claims, including up to $15 million of original principal, the DIP Premium Loans, and accrued interest, convert into 30% of the New Common Equity, subject to MIP dilution.
ABL — The revolver stays in place rather than being cut. The DIP ABL converts dollar-for-dollar into a new $225 million exit ABL, on terms substantially consistent with the prepetition facility, or is repaid in full from a refinancing by a third-party lender.
New money equity — The $60 million Equity Financing brings in fresh capital for 55.80% of the New Common Equity, with a further 4.20% going to the Equity Financing Backstop Parties as their premium.
| New Common Equity Allocation (before MIP dilution) | Share |
|---|---|
| Equity Financing ($60 million new money) | 55.80% |
| DIP Term Loan claims not rolled into the New Term Loan | 30.00% |
| Prepetition Term Loan holders | 10.00% |
| Equity Financing backstop premium | 4.20% |
| Total | 100.00% |
The MIP may dilute all of the above by up to 10%.
Key terms of the New Term Loan Facility:
Borrower and guarantors — Reorganized Leslie's Poolmart, guaranteed by reorganized Leslie's, Inc. and each existing and future subsidiary of the borrower.
Size and lenders — $75 million, held initially by the DIP Term Loan lenders whose DIP claims convert into it. Once repaid, it cannot be reborrowed.
Interest — Term SOFR plus 6.50% per annum paid in kind. The board may instead elect to pay all or part in cash, in which case the margin on the cash portion drops to 4.00%. The SOFR floor is 0.00% and default interest is an additional 2.00%.
Maturity and amortization — Five years after closing, with 1.00% annual amortization paid quarterly.
Collateral — First-priority liens on substantially all assets, subject to an intercreditor agreement with the New ABL Facility modeled on the existing one.
Prepayments — Voluntary prepayment is permitted at any time without premium. Mandatory prepayments are required from 100% of net cash proceeds of non-ordinary course asset sales and casualty events above annual thresholds to be agreed, subject to reinvestment rights, and from debt raised outside what the credit agreement permits.
Additional debt capacity — The borrower may incur up to $50 million of debt ranking ahead of the New Term Loan, subject to a right of first refusal for existing New Term Lenders.
Lender protections — Protections against liability management transactions can be changed only with the consent of lenders holding more than 80.01% of the facility. Most other amendments require lenders holding more than 50.01%.
Reporting — Quarterly financial statements within 60 days, audited annual financial statements within 120 days, and an annual budget beginning with fiscal year 2028.
Closing conditions — Include entry of the confirmation order, occurrence of the plan's effective date, execution of the New ABL Facility and intercreditor documents, and the Restructuring Support Agreement remaining in effect.
Treatment of Claims and Interests
DIP ABL Claims — Converted dollar-for-dollar into obligations under the New ABL Facility or repaid in full in cash from the proceeds of the New ABL Facility.
DIP Term Loan Claims — $75 million converted into the New Term Loan; the remainder, including the DIP Premium Loans and accrued interest, converted into 30% of the New Common Equity, subject to MIP dilution.
Class 1 — Other Secured Claims — Unimpaired; at the Debtors' option in consultation with the Required Consenting Term Loan Lenders, payment in full in cash, the collateral securing the claim, reinstatement, or other treatment rendering the claim unimpaired.
Class 2 — Other Priority Claims — Unimpaired.
Class 3A — Prepetition ABL Claims — Impaired and entitled to vote; to the extent not rolled up into the DIP ABL Facility, each claim would be converted dollar-for-dollar into obligations under the New ABL Facility or repaid in full in cash. The class is to be removed upon approval of a full roll-up.
Class 3B — Prepetition Term Loan Claims — Impaired and entitled to vote; each holder would receive its pro rata share of 10% of the New Common Equity, subject to dilution on account of the MIP.
Class 4 — General Unsecured Claims — Impaired and entitled to vote; each holder would receive its pro rata share of a $500,000 cash pool. General Unsecured Claims include claims arising from the rejection of executory contracts or unexpired leases.
Class 5 — Intercompany Claims and Class 6 — Intercompany Interests — Reinstated, or cancelled and released without distribution, as reasonably determined by the Debtors with the consent of the Required Consenting Term Loan Lenders.
Class 7 — Existing Equity Interests — Discharged, cancelled, released, and extinguished for no consideration.
Class 8 — Section 510(b) Claims — Cancelled, released, discharged, and extinguished, with no distribution.
Governance and Control Rights
Corporate governance for the Reorganized Debtors will be amended as described in a Governance Term Sheet. The reorganized company will be a private Delaware limited liability company managed by a five-member board of managers: two selected by Grey Helm Capital LLC ("Grey Helm"), one by Axar Capital Management LP ("Axar"), one by the SteerCo Minority Members (Axar, Contrarian Capital Management, L.L.C., Cerberus Capital Management, L.P. and EdgePoint Investment Group) subject to Grey Helm's consent, and the Chief Executive Officer. The initial board serves a two-year term, during which the SteerCo Minority Manager — who must be independent and have industry expertise — serves as Chairperson. Appointment rights fall away at defined ownership thresholds: Grey Helm drops to one manager below 20% and loses its seat entirely below 10%; Axar loses its seat below 10%; the SteerCo Minority Members lose their seat below 20% collectively.
Three Special Consent Matters require the approval of the SteerCo Minority Manager, the Axar Manager, and at least one Grey Helm Manager: hiring, terminating, or demoting the Chief Executive Officer; approving, amending, or terminating the MIP; and increasing or decreasing the size of the board. Transactions between the Company and Grey Helm, Axar, or their affiliates separately require the SteerCo Minority Manager's approval. The reorganized company's limited liability company agreement (the "LLC Agreement") requires the approval of 66.67% of the outstanding membership interests and the board to amend, with each SteerCo Minority Member holding a consent right over changes to the right-of-first-offer, tag-along, drag-along, preemptive rights, transfer, amendment, and Special Consent Matters provisions. The New Common Equity will not be listed on a recognized securities exchange, and the Debtors have covenanted to delist the existing common stock from Nasdaq and deregister it under the Exchange Act. The MIP, to be adopted by the new board after the Effective Date, would provide for awards of up to 10% of the New Common Equity, with terms determined by the new board in consultation with senior management.
A board quorum requires the presence of at least one Grey Helm manager, the Axar manager, and the SteerCo Minority Manager, though a meeting that lacks a quorum solely because one of them is absent may reconvene on 24 hours' notice without that manager. Grey Helm and each SteerCo Minority Member holding at least 7.5% of the membership interests may appoint a non-voting board observer and hold a right of first offer on any other member's transfer to a non-affiliate; members holding at least 5% have preemptive rights on new equity and debt issuances until any initial public offering; and members holding at least 1% receive audited annual and unaudited quarterly financial statements. Grey Helm may assign its appointment rights with a transfer of at least 10% (one seat) or 20% (two seats) of the membership interests, and Axar may assign its seat with a transfer of at least 10%, with the transferee subject to the same fall-away thresholds.
The Transformation Committee
The Restructuring Support Agreement requires the Debtors to constitute a Transformation Committee within five Business Days of the Agreement Effective Date, with an initial organizational meeting in that window. The Committee is an advisory body composed of Steven Ortega (one of the Consenting Term Loan Lenders' advisors), Stephen Coulombe, Jason McDonnell, Jeff White, Ben Lindquist, representatives from two institutions on the steering committee of the Ad Hoc Group (the "Steering Committee"), and such others as the Steering Committee determines; members other than management may be removed or replaced only by the Steering Committee. The Committee exercises no decision-making authority, is not a committee of the board, owes no fiduciary duties, and operates under a contractual rather than corporate-governance framework. Failure to provide it with reasonable access and information, or to reasonably consult with it in a timely manner on the enumerated matters, constitutes an event of default under the DIP credit agreement and a breach of the Restructuring Support Agreement. To the extent practicable, management will consult with the Committee at its weekly meetings before acting on store fleet decisions including closures and lease rejection and assumption; key employee decisions including retention and severance programs and material headcount reductions; pricing, promotional, and merchandising strategy including 2027 pool season inventory planning and any discontinuation or material modification of arrangements with the top 15 merchandise vendors by trailing 12-month purchases; material asset dispositions; marketing strategy; material capital spending commitments; and strategic initiatives. Management continues to run day-to-day operations, and the consultation commitment does not interfere with the Company's ability to make decisions on those matters as necessary to operate the business. The Company will provide a budget of up to $100,000 per month for a consultant team supporting the Committee, and Mr. Ortega will be provided a workspace at Company headquarters starting October 12, 2026.
Milestones
The Debtors intend to conclude these cases by early 2027 to position themselves for the primary inventory buying season, with the Effective Date to occur no later than 110 days after the Petition Date.
September 30, 2026 — Petition Date; commencement of the Chapter 11 cases.
Petition Date + 3 days — Subscription Procedures and Subscription Form delivered to all Prepetition Term Loan Lenders; Interim DIP Order entered.
Agreement Effective Date + 5 Business Days — Transformation Committee established and initial organizational meeting held.
Petition Date + 7 days — Omnibus Lease Rejection Motion filed.
Petition Date + 20 days — Plan and Disclosure Statement filed.
Petition Date + 35 days — Final DIP Order entered.
Petition Date + 55 days — Disclosure Statement approval order entered.
Petition Date + 100 days — Confirmation order entered.
Petition Date + 110 days — Effective Date.
Failure of any Milestone to be satisfied, unless waived, modified, extended, or amended in writing by the Debtors and the Required Consenting Term Loan Lenders, is a termination event under the Restructuring Support Agreement. The Required Consenting Term Loan Lenders are Consenting Term Loan Lenders holding at least 60.01% of the aggregate outstanding principal amount of Prepetition Term Loan Claims; the Governance Consenting Term Loan Lenders, whose sole discretion governs the New Organizational Documents, hold at least 66.67%. Additional termination triggers running to the lenders include entry of an order denying confirmation, conversion or dismissal of the cases, appointment of a trustee or an examiner with expanded powers, entry of any cash collateral or postpetition financing order not acceptable to the Required Consenting Term Loan Lenders, an event of default or acceleration under the DIP Term Loan Credit Agreement, and any Debtor determination to pursue an Alternative Restructuring Proposal. The Debtors retain a fiduciary out: a Company Party's governing body may terminate after consulting outside counsel upon determining that proceeding would be inconsistent with its fiduciary duties or applicable law, or in the exercise of those duties to pursue an Alternative Restructuring Proposal, subject to notice within twenty-four hours.
While the Restructuring Support Agreement is in effect, the Debtors may not, without the prior written consent of the Required Consenting Term Loan Lenders, begin closing or winding down any store; make intercompany asset transfers, strategic investments, or capital expenditures outside the ordinary course; sell, encumber, or license material assets (including intellectual property) outside the ordinary course; assume, reject, or terminate any material contract or lease; enter into or amend compensation, retention, or severance arrangements for senior officers or any broad-based severance or retention program; issue, reclassify, or redeem equity interests; or amend the Transformation Committee mandate. The Debtors may terminate the agreement upon a material lender breach uncured for 15 Business Days (effective only as to the breaching lenders while non-breaching lenders hold at least 66.67% of Prepetition Term Loan Claims), a backstop lender's funding default not covered by the other backstop lenders within 10 Business Days, a final non-appealable order enjoining a material portion of the restructuring that remains in effect for 30 Business Days after notice, or an order denying confirmation.