Party City filed its second chapter 11 case in December 2024 after emerging from an earlier restructuring in October 2023. The second filing was a chain-wide liquidation of a roughly 700-store footprint, with nationwide store-closing sales and a reported February 28, 2025 target for store closures. The CRO Declaration described prepetition appraisal pressure, lender reserves, and a liquidity default in the weeks before the filing.
The second case was funded through negotiated use of cash collateral rather than a conventional DIP facility. The Cash Collateral Motion and Interim Cash Collateral Order described a budget process, weekly variance reporting, and reserves for wind-down and labor liabilities. The court later entered a Sale Procedures Order for asset sales and lease transactions, and the case ultimately moved to a confirmed with a liquidating trust and a liquidating trustee.
Party City Holdco Inc. (jointly administered debtors)
Court
U.S. Bankruptcy Court, Southern District of Texas (Houston Division)
Case Number
24-90621
Judge
Hon. Alfredo R. Pérez
Petition Date
December 21, 2024
Confirmation Date
August 27, 2025
Effective Date
September 22, 2025
Restructuring Path
Store-closing liquidation funded through cash collateral, followed by a confirmed liquidating plan and liquidating trust
Scale at Filing (reported / filings)
~692 company-owned stores and ~29 franchise stores; about 12,000 employees with 95%+ retained for wind-down operations; store-closing sales across 692 locations
Prepetition Debt (reported / filings)
~$400 million
Claims Agent
Kroll Restructuring Administration LLC
Case Snapshot
Second Chapter 11 Liquidation and Liquidating Trust Plan
What Party City was at filing (retail + consumer products). Party City entered the 2024 case with a retail fleet of company-owned stores, franchise locations, and e-commerce operations, plus a consumer products business focused on design, sourcing, and distribution. The CRO Declaration described a petition-date footprint of about 692 company-owned stores and roughly 29 franchised stores, including Puerto Rico, while public reporting described the total footprint as nearly 700 stores.
Party City’s scale also increased the number of parallel case workstreams. In addition to inventory liquidation, the estate faced a lease and real estate disposition process at store and distribution locations, a process to market and monetize intellectual property, and a claims reconciliation effort complicated by retail counterparties and lease rejection damages. The case targeted store closures by February 28, 2025.
A business built around celebration demand and seasonal peaks. Party City’s model historically benefited from predictable seasonal events (Halloween, graduations, birthdays, holidays), with a mix of branded party supplies, décor, and related accessories. Third-party company histories describe Party City’s early growth as a specialty retail roll-up beginning in the late 1980s and 1990s, including an early emphasis on Halloween-related merchandise as a traffic driver. Reference sources also track the company’s ownership history and capital markets history (including a private equity take-private and a later return to public markets) that contributed to its leverage profile across cycles.
The declaration described a prepetition sequence tied to inventory valuation and liquidity availability: appraisal-related borrowing-base pressure, discretionary reserves imposed by lenders, and limited time remaining in the holiday selling period.
2023 Restructuring and Refiling Context
The 2023 chapter 11 and the later refiling. Party City filed for bankruptcy in January 2023 and pursued a restructuring that was framed as a debt reduction and recapitalization rather than a liquidation. The company later announced that it emerged from chapter 11 on October 12, 2023 after plan confirmation in early September 2023, describing the process as eliminating nearly $1 billion of debt. The company also announced court approval of its plan, and the emergence and CEO transition were covered in October 2023.
The December 2024 filing was the company’s second bankruptcy in less than two years, and it planned to close all stores in the second case.
Drivers of the 2024 Liquidation Filing
Documented drivers of the second filing: sales pressure and a failed capital raise. Between July 2023 and July 2024, comparable store sales fell 9.5% and the consumer products division’s sales declined 24.8%. The company also pursued September 2024 capital-raising efforts that did not close.
The external narrative also emphasized competitive and macro pressures. Party City’s public statements referenced inflationary pressures on costs and consumer spending and a challenging retail environment. Competition from both seasonal and mass-merchant categories was also cited—Spirit Halloween and large retailers such as Target and Amazon were described as alternatives for seasonal merchandise and party goods. For a specialty chain, this competition can pressure pricing and inventory turns, tightening the margin cushion that supports fixed lease obligations and distribution costs.
Pre-filing liquidity chronology (filings). The declaration described a liquidity-focused capital raise attempt in September 2024, a preliminary appraisal report around November 12, 2024 that reduced net orderly liquidation value supporting credit availability, a $50 million discretionary reserve imposed by the ABL agent on November 18, 2024, and a liquidity covenant breach on December 10, 2024. The debtors also described a forbearance agreement dated December 17, 2024 and a filing deadline of December 22, 2024.
ABL agent imposed a $50 million discretionary reserve
December 10, 2024 (filings)
Liquidity fell below required minimum; event of default described
December 17, 2024 (filings)
Forbearance agreement with ABL/FILO lenders described
December 21, 2024
Petition date
Pre-Filing Liquidity Timeline (selected)
Capital structure at filing (filings). The declaration described total prepetition debt of about $400 million. The capital structure included an asset-based lending facility described as up to $250 million, with roughly $118 million drawn and about $31 million in letters of credit at the petition date, plus a FILO facility with roughly $13 million outstanding. The declaration also described about $267.5 million of second lien notes outstanding and stated that four second lien noteholders owned more than 97% of the equity.
ABL Facility (filings)
Up to ~$250 million; ~$118 million drawn + ~$31 million letters of credit
Ad hoc second lien group described as owning 97%+ of equity
Capital Structure at Petition Date (selected)
Cash collateral instead of a DIP facility. The debtors sought authority to use cash collateral under a negotiated package described in the cash collateral motion rather than proposing a standalone DIP facility. The motion and later orders described a budget-and-variance structure with case milestones.
The filings described the liquidation as a short-duration wind-down centered on inventory liquidation, lease dispositions, and related reserve requirements rather than continued operation of the full chain.
Cash collateral terms: budget governance, reserves, and termination triggers (filings). The motion emphasized budget-driven use authorizations, weekly variance testing, and a set of reserves designed to ensure the estate could execute a shutdown even if cash collateral access terminated. The initial framework included a professional fee carve-out cap described as $1.75 million, a wind-down reserve described as $28 million, and a WARN/severance reserve described as up to $3.5 million. Filings also described an outside date of March 31, 2025 for the cash collateral arrangement, subject to extensions by the directing cash collateral agent.
The interim cash collateral order added operational detail around how the budget process functioned and how variance reporting would be tested. The order contemplated rolling 13-week forecasts on a schedule keyed to month-end dates and weekly variance reports starting in early January 2025, comparing receipts and disbursements to projections in the approved budget. The variance thresholds tightened after the first week of the case.
Funding Tool (filings)
Consensual use of cash collateral rather than a standalone DIP facility
Budget Framework (filings)
Court-approved budget with updates via a rolling forecast process; weekly reporting
Weekly Variance Testing (filings)
Weekly variance reports starting early January 2025; receipt/disbursement thresholds tighten after week one
Wind-Down Reserve (filings)
$28 million (subject to adjustment)
WARN/Severance Reserve (filings)
Up to $3.5 million
Professional Fee Carve-Out (filings)
$1.75 million cap upon trigger (as described in filings)
Outside Date (filings)
March 31, 2025 (subject to extension by directing agent)
Cash Collateral Structure (selected)
Labor outcomes. The workforce was described as about 12,000 employees at filing, with 95%+ retained for wind-down operations. Employees received letters stating stores would close on February 28, 2025, and workers were described as being informed they would not receive severance and that benefits would end when the company went out of business. The interim order required a WARN/severance reserve of up to $3.5 million.
Store-closing sales. Store-closing sales began immediately following the petition date, with early discounts described as up to 50% and a fast-moving closure schedule. Gordon Brothers, identified publicly as the liquidation partner, announced that store-closing sales commenced on December 23, 2024 across 692 locations, with “all sales final” terms.
A February 2025 retail trade publication described restocking stores with new merchandise for the final weeks of sales and described discounts rising to as much as 80% in late-stage liquidation. The reporting suggests the liquidation strategy included active inventory management rather than a pure sell-through of existing stock.
Real estate and leases. The case paired a chain-wide shutdown with a fixed closure deadline of February 28, 2025. Lease and real estate dispositions were also described as a significant wind-down workstream. A&G Real Estate Partners also auctioned 695 store leases.
Party City’s sale procedures order created a framework for auction-driven lease assignments, de minimis asset sales, and related contract assumption-and-assignment procedures during the wind-down.
Sale procedures: a process that could handle multiple asset lanes. Shortly after the petition date, the court entered the Sale Procedures Order approving procedures for sales of substantially all assets, de minimis asset sales, and assumption-and-assignment procedures for executory contracts and unexpired leases. The structure mattered because it separated the asset lanes and created predictable objection and notice mechanics for stakeholders. The order permitted the debtors to designate qualified bidders, run auctions, and select successful and backup bids, and it contemplated the possibility of stalking horse bidders with customary bid protections. It also imposed constraints: break-up fees were capped at 3% of purchase price, and any stalking horse and bid protections were subject to notice and objection opportunities.
Under the order, non-debtor contract counterparties could be treated as qualified bidders for their own contracts or leases, and cure disputes could be resolved on a schedule that did not necessarily delay closing. If a cure objection was timely filed and not resolved by the sale hearing, the dispute could be set for a later hearing while the assumption or assignment proceeded with disputed cure amounts reserved.
Milestones: why February 28, 2025 became a key date. A store closure deadline of February 28, 2025 was described early in the wind-down, and the shutdown began immediately after the petition date. Bankruptcy filings also described milestones aligned with that timeframe, including targeted completion of inventory liquidation and vacating retail premises by February 28, 2025, with additional workstreams extending into March 2025 for IP marketing and real estate disposition.
December 21, 2024
Petitions filed; chain-wide closure launched
December 23, 2024
Store-closing sales launched across 692 locations
Late January 2025 (filings)
Reporting checkpoint tied to store-closing performance and recommendations
February 28, 2025
Reported store closure deadline; filings described inventory liquidation and store-vacate target around this date
August 27, 2025 (filings)
Court entered findings/order confirming a joint plan of liquidation
September 22, 2025 (filings)
Effective date occurred for the liquidating plan; plan releases and injunctions became effective
Key Timeline (selected)
Franchisees and brand/IP. Some franchisees planned to continue operating even as the corporate-owned store fleet closed, including examples of franchise stores in Hawaii and Virginia. Bankruptcy filings also described an IP marketing and sale process as one of the liquidation workstreams.
Liquidating Plan and Trust Structure
Plan confirmation and effective date. The bankruptcy court entered the Confirmation Order approving the disclosure statement on a final basis and confirming a joint chapter 11 plan of liquidation on August 27, 2025. The effective date notice later stated that the plan's effective date occurred on September 22, 2025 after conditions precedent to consummation were satisfied or waived. The notice also stated that plan releases, exculpations, discharges, and injunctions became effective on that date.
The confirmed plan contemplated a liquidating trust established on the effective date, with assets, including causes of action, treated as transferred to and beneficially owned by the trust as of that date. The liquidating plan identified Elizabeth LaPuma as the liquidating trustee. The plan also described a governance transition in which the liquidating trustee would become the sole officer, director, and manager of each debtor after the effective date.
Post-effective deadlines. The notice stated that the administrative expense claim bar date would fall no later than 30 days after the effective date and that final professional fee applications were due no later than 45 days after the effective date. Using the September 22, 2025 effective date, those deadlines pointed to late October 2025 for administrative expense submissions and early November 2025 for final professional fee applications.
The notice also stated that, as of the effective date, all executory contracts and unexpired leases were deemed rejected unless they had already been assumed, expired or terminated, or were subject to a pending motion to assume or reject.
Claims Administration and Professional Advisors
Claims and noticing administration. The court authorized Kroll Restructuring Administration LLC to serve as claims, noticing, and solicitation agent. The order described claims submission procedures, compensation through monthly invoices treated as administrative expenses, and restrictions on service cessation absent a court order.
Professional advisors and liquidation partners. A law firm summary of Party City’s 2023 restructuring listed Paul, Weiss, Rifkind, Wharton & Garrison LLP as company counsel, Moelis & Company as investment banker, AlixPartners as financial advisor, and A&G Realty Partners as real estate advisor, alongside Davis Polk and Lazard for an ad hoc creditor group. In the second case, Gordon Brothers was identified publicly as the liquidation partner, and A&G was reported as a lease auctioneer.
Party City’s second filing moved from immediate store-closing sales to a liquidating plan and liquidating trust focused on claims reconciliation and distributions.
Frequently Asked Questions
When did Party City file its second chapter 11 case (the 2024 filing)?
Party City filed the 2024 case in the U.S. Bankruptcy Court for the Southern District of Texas in Houston. The lead case proceeded under Case No. 24-90621 (ARP) (Jointly Administered).
How big was Party City at the time of the 2024 filing (stores and employees)?
Party City was described as having about 700 stores and about 12,000 employees at the time of filing. Store-closing sales were described across 692 locations, and more than 95% of employees were described as retained for wind-down operations.
Why did Party City return to bankruptcy so soon after emerging in 2023?
Ongoing sales pressure and competitive conditions were described after emergence, including declines in comparable store sales and consumer products division performance and failed capital-raising efforts in September 2024. The first case also eliminated nearly $1 billion of debt, and the company announced it emerged on October 12, 2023. The second filing proceeded as a liquidation.
How much debt did Party City report in the 2024 filing?
Party City was described as having roughly ~$400 million of debt obligations at the time of the December 2024 filing.
How was Party City’s liquidation funded (DIP vs. cash collateral)?
The case was structured around negotiated use of cash collateral rather than a traditional DIP facility. The cash collateral motion described a budget-driven framework with weekly variance reporting, reserve accounts for wind-down and WARN/severance liabilities, and a professional fee carve-out structure.
What was the timeline for store closures and store-closing sales?
Store-closing sales began immediately after the petition date, with Gordon Brothers announcing store-closing sales commencing December 23, 2024 across 692 locations. A closure deadline of February 28, 2025 and early discounts up to 50% were described for the wind-down, and discounting up to 80% and restocking activity were described for the final sales push.
What happened after plan confirmation and the plan effective date?
The court entered a confirmation order confirming a joint plan of liquidation on August 27, 2025, and the plan's effective date occurred on September 22, 2025. The post-effective structure included a liquidating trust administered by a liquidating trustee.
Who is the claims agent for Party City?
Kroll Restructuring Administration LLC serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.
For more chapter 11 case research, visit the ElevenFlo blog.
This article was researched and written with AI assistance, using court filings, public records, and news sources. AI-generated content can contain errors. Verify all information against primary sources before relying on it. This is not legal or financial advice. See the disclaimer.