In-Court Restructuring and Sale of a Stationary Gift & Retailer


Situation Overview

Paper Source, Inc. (“Paper Source” or the “Company”) is an American stationery and gift retailer based in Chicago, Illinois, that offers papers, custom invitations and announcements, gifts, greeting cards, gift wrap, paper craft kits, party supplies, and personalized stationery and stamps. The Company was founded in 1983, and began an expansion plan in 2013 after the Company was acquired by private equity sponsor, Investcorp Asset Management.
Since 2016, the Company had been experiencing both top-line pressure as a result of declining same-store-sales, as well as bottom line pressure from increasing rent and labor costs. In February of 2020, the Company, with funding from its equity sponsor, acquired 27 Papyrus locations out of bankruptcy.

These stores were of strategic value to Paper Source given the location of the stores and the markets they served. As part of the Papyrus bankruptcy, Paper Source was also able to extract significant lease savings from these locations, creating even more value for Paper Source.

Almost immediately after the Papyrus acquisition, the economic impact of COVID-19 began to take shape, resulting in mass store closings as well as a drastic reduction to in-store foot traffic. The Company was forced to take emergency action to ensure its survival, which included deferring rent
payments on its 160+ retail locations, furloughing both in-store and corporate staff, as well as other cost-cutting measures meant to help extend the liquidity runway of the Company until the economy normalized. Unfortunately, the economic impact of COVID-19 extended into the Company’s seasonal inventory build, which is critical for meeting Paper Source’s peak sale season – the holidays (~40% of sales are in 4Q). After a prolonged period of depressed top line performance due to government mandated retail store closures, Paper Source was in need of a capital infusion in order to meet its critical pre-holiday inventory build.

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