Out-of-Court Workouts Are Transforming Retailers' Strategies Amid Bankruptcy Challenges

In an evolving financial landscape, retailers are increasingly turning to out-of-court workouts to manage their debt and mitigate the rising costs associated with Chapter 11 bankruptcy filings. Andy Graiser, co-president of AG Real Estate Partners and an expert in restructuring, has highlighted that these alternatives are gaining traction among retailers and their asset-based lenders.

During a recent panel at Debtwire's 2025 Restructuring Forum, Graiser elaborated on how out-of-court workouts enable businesses to streamline their portfolios, effectively stabilize their balance sheets, and avoid the cumbersome and expensive bankruptcy process. "While it might seem counterintuitive to avoid Chapter 11, the severe costs associated with it make our strategic approach more appealing for many retailers today," he explained.

The motivation for this shift is clear. Following the economic stimulus measures in 2022, which saw a significant downturn in Chapter 11 filings—plummeting to just three—there has been a marked increase in restructuring efforts. In 2023 alone, 17 retailers filed for bankruptcy, with numbers remaining high in subsequent years. This reality somehow spurred a more proactive approach among companies, as they seek innovative solutions to limp through financial duress.

Graiser noted that AG Real Estate is currently collaborating with 14 diverse companies, guiding them through the out-of-court restructuring process. The firm has played a crucial role in real estate restructuring for bankrupt commercial chains, helping giants like Party City, Big Lots, and Rite Aid navigate their challenges effectively. In more than five high-profile cases over the last 24 months, AG led efforts to restructure over 4,000 leases, covering 110 million square feet in retail, office, and industrial spaces. These initiatives resulted in a staggering savings of $1 billion for their clients.

One of the key elements of this successful strategy is the ability to negotiate directly with landlords without invoking bankruptcy laws. Graiser explained, "While lease rejections in non-bankruptcy situations can be complex, we can leverage the negotiation strengths between our clients and landlords to resolve agreements." This proactive engagement demonstrates to landlords that there is a willingness to manage outstanding lease obligations before resorting to Chapter 11.

The process, however, does require transparency regarding the financial realities, explicitly stating to landlords that the business might have limited resources to cover lease termination fees. Graiser remarked, "Our message to landlords is straightforward regarding urgency—if we can’t resolve 90% of the leases within the next month and a half, we may need to proceed to Chapter 11. This approach can motivate landlords to collaborate more closely with us on favorable terms."

Graiser also shed light on how pre-packaged bankruptcies (prepacks) represent an efficient alternative for companies when traditional bankruptcies become necessary. Due to time constraints in Chapter 11 processes, these quick turnaround approaches can yield significant benefits. He relayed the story of Mattress Firm, which underwent a prepack bankruptcy in just 35 days, confidently settling with over 2,200 landlords and achieving remarkable cost savings.

The panel’s discussions, featuring perspectives from other experts such as Thomas H. Ripley and U.S. Bankruptcy Judge Brendan L. Shannon, emphasized the importance of adapting to the current retail climate and understanding the complexities involved in restructuring efforts.

AG Real Estate Partners prides itself on providing comprehensive commercial real estate services, aiding clients in optimizing their asset values during both healthy and distressed scenarios. With over $13 billion in property sales and more than $12 billion in occupancy cost savings negotiated since its inception, AG continues to be a frontrunner in the real estate sector.

In conclusion, as retailers navigate the challenging waters of today’s economic climate, embracing out-of-court workouts may offer a viable path to not only survive but also thrive in an ever-evolving market landscape. The wisdom shared by industry leaders like Andy Graiser highlights that through strategic planning, transparent negotiations, and innovative solutions, businesses can effectively overcome the hurdles they face during trying times.