Thornton, Colo.— Ultimate Electronics was scheduled to put all of its assets on the auction block last Thursday, a move that comes after the A/V specialty chain failed to meet a final deadline to forge a financing package that would pay creditors and fund its emergence from Chapter 11 bankruptcy protection.
At a hearing at the U.S. Bankruptcy Court in Wilmington, Del. on April 8, an Ultimate attorney said that no one, including new CEO Mark Wattles, is willing to finance the company as a going concern.
Despite Ultimate’s seemingly dire situation, industry observers believe that the auction may serve as a maneuver to allow Wattles to buy back stores and resume operations with a clean slate.
“There is a possibility that Wattles and his group may buy back some of the Ultimate stores and reopen them,” said Mitsubishi’s Max Wasinger, senior VP/sales and marketing. “It could return like a phoenix, rising from the ashes,” he told TWICE during the vendor’s product line preview in Orlando.
Roger Heuberger, president/CEO and executive director of PRO Group, the buying organization that Ultimate helped found 20 years ago, concurred. “Wattles may own 30 stores at the end of the week,” he said, based on indications from Wattle’s organization. “There’s nothing to preclude him from buying assets, wind up with a group of stores, and shake off liabilities.”
Ultimate is slated to hold two auctions this week at the U.S. Bankruptcy Court in Denver, beginning with the 30 stores previously marked for closure (see TWICE, April 4, p. 1). That auction will be followed by a general sell-off of all 62 stores, including leases, inventory and fixtures.
According to filings, Ultimate owes about $160 million. Its largest unsecured creditors include Monster Cable, which has $11 million in claims; Vertis, $3 million; Klipsch, $1.5 million; Denon, $1.4 million; Sharp, $1.3 million; and Yamaha, $1.2 million. Sony and Apple are also owed more than $1 million each.
PRO’s Heuberger noted that any asset sale would violate the group’s covenants, immediately purging Ultimate’s membership in the $2.4 billion buying organization. The impact on PRO members would be minimal, he said, due to re-structured group programs with vendors that include “slaughter rules for extraordinary events,” which were renegotiated after Ultimate returned to the fold in 2004 following a one-year absence.
Any new retail entity that emerges from the auction may also qualify for membership consideration, Heuberger added, depending on what form it takes and who operates it.
“The odds are against Ultimate staying in the group,” he said, “but we’re going to chill for a week and see what they become.” The PRO Group will have its annual meeting in Scottsdale, Ariz. starting this Tuesday. — Additional reporting by Steve Smith