Paper Source leaves suppliers upset with Chapter 11 bankruptcy filing

American stationery and craft supplies retail chain, Paper Source, has filed for bankruptcy and is planning for a sale after its previous plans to expand were knocked on the head by Covid-19.

The Chapter 11 filing allows Paper Source to continue operating while it works on repaying creditors. All its stores remain open and the company is able to pay employees and vendors prior to the closing of the sale, the company said in a statement.

The retailer operates from 158 stores across the USA, after expanding in March 2020 with 27 stores acquired from luxury stationery chain, Papyrus, which had also gone bankrupt. Less than three weeks after this acquisition Paper Source temporarily closed all of its own stores, which had generated more than 80 per cent of sales in 2019.

Court papers show that Paper Source has handed control of the business to an affiliate of MidCap Financial, in exchange of debt forgiveness. The company has gone bankrupt owing more than $103million to lenders, over half of which was under a first-lien term loan. Paper Source had already asked landlords for rent breaks and stretched out payment terms with suppliers. Its rent concessions expired in January of this year and suppliers became very anxious about the terms they were being asked to work under.

Paper Source employs about 1,700 people in the States, most of them paid hourly. Store closures might take place during the bankruptcy, according to court papers, though no further details were given.

Small suppliers to the chain are now facing a problem that will be understood by many British card publishers, who’ve gone through many similar situations over the years as major greetings and stationery chains became insolvent and started up again with rejigged business models which typically involved squeezing suppliers.

Reporter Jeremy Hill at Bloomberg reported that “Paper Source placed unusually large orders with greeting card suppliers in the months and weeks preceding the bankruptcy, according to interviews with two vendors and an outpouring of online complaints. The bankruptcy filing means that payment for those orders may be delayed and, in some cases, possibly never repaid in full.

The owner of Washington-based publisher, The Card Bureau, commented: “If they were worried that we wouldn’t ship to them, they should’ve just paid up front for the product. $15,000 to them, that’s nothing. To a small business like me, that’s payroll, that’s rent.”

Owner Janie Velencia, said Paper Source had ordered more stock from her business in a 60-day period than it had in all of 2020, saying the retailer ordered $5,000 worth of merchandise within 20 days of the filing and $10,000 in the weeks before that.

The CEO of Paper Source, Winnie Park, said suppliers had been asked for larger than usual orders ahead of Christmas because the chain needed stock from the 27 stores it acquired from Papyrus. She said most of the orders would get a higher repayment priority in bankruptcy because of their proximity to the filing.

“We apologize for the inconvenience this brings to the community of makers for Paper Source,” Park said. “This is a difficult time for the entire Paper Source community, our company and its makers. We care tremendously about our makers, especially as many of them are small business owners.”

Founded in 1983 by Susan Lindstrom, Paper Source started out as a single outlet in Chicago, growing to 27 stores by 2007, when Lindstrom sold a majority stake to private equity firm, Brentwood Associates. In 2013, affiliates of Investcorp International Inc. bought Paper Source from Brentwood.

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