Party City: Second Filing Liquidation Funded by Cash Collateral and Asset Sales

Party City’s December 2024 chapter 11 filing is an instructive second-chapter case: the retailer emerged from an earlier restructuring in October 2023, then returned about fourteen months later with a court-supervised liquidation of a roughly 700-store footprint. The refiling was a full-chain wind-down paired with nationwide store-closing sales and an accelerated shutdown timeline that targeted February 28, 2025 for store closures. The case also illustrates how retail bankruptcies can pivot from “restructure and continue operating” to “monetize inventory and unwind leases” when borrowing-base collateral values compress and lender-imposed reserves restrict liquidity heading into peak-season selling.

In the second case, the liquidation was funded primarily through negotiated use of cash collateral rather than a conventional DIP facility, and the case economics were driven by a budget process, variance reporting, and reserves for wind-down and labor liabilities. The sale architecture separated the value-realization workstreams—inventory liquidation, lease/real estate dispositions, and intellectual property marketing—under a court-approved Sale Procedures Order that could accommodate auctions, stalking horse bids, and assumption-and-assignment transactions. The case ultimately moved to a confirmed Liquidating Plan with a liquidating trust and a liquidating trustee, formalizing post-effective governance and claims administration.

Second Chapter 11 Liquidation and Liquidating Trust Plan

What Party City was at filing (retail + consumer products). Party City entered the 2024 case as a large celebrations-products platform with two interrelated businesses: a retail fleet (company-owned stores, franchise locations, and e-commerce) and a consumer products operation built around 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), and the store footprint at filing was nearly 700 stores overall. For a retailer selling inventory-heavy seasonal categories, that footprint matters because value realization during a wind-down is driven by sell-through and markdown cadence across thousands of SKUs, while the largest constraints often come from labor, rent, and logistics costs that continue to accrue until the fleet is dark.

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 more relevant restructuring point is that seasonal specialty retailers can face outsized liquidity risk when availability under asset-based credit facilities is sensitive to inventory valuation. Inventory is the primary collateral base, so borrowing capacity can compress quickly if appraisals reduce net orderly liquidation value, reserves are imposed, or eligible inventory categories shrink. Party City's CRO Declaration described a prepetition sequence consistent with this dynamic: appraisal-related borrowing-base pressure, discretionary reserves imposed by lenders, and limited time into the holiday season.

2023 Restructuring and Refiling Context

The 2023 chapter 11 and why the refiling mattered. Party City’s 2024 case cannot be understood without the first case. The company 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 and providing a capital structure intended to support continued operations. The company also announced court approval of its plan as part of the emergence process, and the emergence and CEO transition were covered in October 2023.

The strategic significance of the refiling was that it converted an “ongoing retail platform” story into a liquidation mechanics story. 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. From a restructuring design perspective, the second filing is often where the capital structure and liquidity tools become more controlling than management “turnaround” narratives: lenders have updated collateral valuations, vendors and landlords have seen a full prior cycle, and the market can interpret a second filing as an irreversible shift toward exit.

Drivers of the 2024 Liquidation Filing

Documented drivers of the second filing: sales pressure and a failed capital raise. The period leading up to the 2024 petition date included quantified performance data for a twelve-month period that included both retail and consumer products declines. 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. These datapoints matter because they help explain why a company that had just completed a balance-sheet restructuring could still face a liquidity cliff: a retailer can reduce funded debt but remain vulnerable if traffic declines persist, margins are pressured by promotional intensity and inflation, and working-capital facilities tighten as inventory collateral values change.

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 CRO Declaration described a set of events that, taken together, resemble a borrowing-base compression scenario rather than a gradual "strategic" wind-down. The timeline included 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 that triggered a default. The debtors described entering into a forbearance agreement on December 17, 2024 and filing chapter 11 petitions on December 21, 2024, with the forbearance described as requiring a filing deadline of December 22, 2024. In retail ABL structures, this pattern is consistent with a rapid transition from “operating under a revolver” to “operating under lender-controlled budget and milestone constraints.”

Capital structure at filing (filings): where the leverage sat. The CRO 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 (an ad hoc noteholder group) owned more than 97% of the equity. In a second filing, that equity concentration can matter even in liquidation: the parties who control equity can also control negotiations over cash collateral terms, budgets, and governance, and can have meaningful influence over how residual causes of action are pursued and how administrative expense pressure is managed.

Why the case used cash collateral instead of a typical DIP facility. A second-filing retailer that has already reorganized once may have limited appetite (from any constituency) for priming DIP financing that funds an operating turnaround over an extended period. In Party City, the case was framed publicly as a liquidation from the start, and the funding structure reflected that: the debtors sought authority to use cash collateral under a negotiated package described in the Cash Collateral Motion. For practical purposes, cash collateral became the “DIP substitute,” but with features that can be more controlling than DIP terms because they are embedded in a budget-and-variance regime that is subject to lender direction and case milestones.

This kind of cash collateral construct can be appropriate when the estate’s goal is to maximize realizations from inventory and leases over a short period rather than preserve a going concern. It also changes how professionals should model risk: the main constraints are typically not leverage covenants but (i) budget adherence, (ii) variance test triggers, (iii) reserves earmarked for wind-down costs and WARN exposure, and (iv) milestone slippage. If the liquidation underperforms projections, cash collateral availability can tighten quickly, raising the risk that the estate cannot fund administrative costs without additional concessions or a shift in strategy.

Cash collateral terms: budget governance, reserves, and termination triggers (filings). The Cash Collateral 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 (upon trigger), a wind-down reserve described as $28 million (subject to adjustment), 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 delivery of rolling 13-week forecasts on a schedule keyed to month-end dates and described 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. In retail liquidation, these mechanics can be outcome-determinative: a chain can raise cash quickly through markdowns, but the speed of cash generation and the pattern of receipts versus disbursements (payroll, rent, logistics) is volatile, and the variance framework can become a hard constraint if liquidation sales underperform or if expenses spike due to operational disruptions.

Labor outcomes were part of the liquidation economics. 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. From a case design perspective, this intersects with the cash collateral construct: the interim order required a WARN/severance reserve up to $3.5 million, indicating that the estate and secured parties treated labor-related exposure as a specific liquidity risk that needed to be reserved for in the wind-down budget.

Store-closing sales: inventory liquidation as the value engine. 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 typical for liquidation events. These datapoints align with what one would expect in a chain-wide liquidation: the estate’s core objective is to turn inventory into cash quickly while managing the timing of lease rejections and store shutdowns to reduce occupancy burn.

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: why the lease lane often dominates retail liquidations. In a national retail liquidation, lease rejections and assignments can determine the estate’s net outcome as much as inventory proceeds. 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, underscoring how quickly the lease monetization process can scale when the strategy is a chain-wide shutdown.

The bankruptcy mechanics here are standard but the consequences are case-specific. Lease rejections create rejection damages claims (often large) that can expand the general unsecured pool, while lease assignments can generate value if the estate can sell locations to stronger retailers or to the highest-and-best bidder with adequate assurance. In big-box or specialty retail, the lease lane is often where creditors see the largest disputes: landlords may fight cure amounts, adequate assurance, and assignment terms; bidders may want flexibility to select subsets of locations; and the estate must balance speed against maximizing lease monetization. Party City’s sale procedures order created a framework designed to handle both auction-driven lease assignments and a high volume of de minimis asset sales, giving the estate a court-approved “operating system” for disposition transactions 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.

The sale procedures also reflected a practical reality of retail liquidations: contract and lease counterparties are not passive bystanders. Under the order, non-debtor contract counterparties could be treated as qualified bidders for their own contracts/leases, and cure disputes could be resolved on a schedule that did not necessarily delay closing. The order contemplated that if a cure objection was timely filed and not resolved by the sale hearing, the dispute could be set for a subsequent hearing while the assumption/assignment proceeded, with disputed cure amounts reserved. This design—separating “close the transaction” from “litigate the cure amount”—is a common approach in high-volume lease assignment programs where the estate needs to move quickly and cannot afford to let every cure dispute become a gating issue.

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.

Franchisees and brand/IP: what could survive a corporate wind-down. Some franchisees planned to continue operating even as the corporate-owned store fleet closed, including examples of franchise stores in Hawaii and Virginia. In a liquidation, this kind of outcome depends on IP rights and franchise agreements: a franchisee can continue only if it retains access to branding and supply arrangements (or can pivot to a new brand) and if the franchisor’s IP is not sold to a buyer that terminates or restructures the franchise network. Bankruptcy filings described an IP marketing and sale process as one of the liquidation workstreams, consistent with the idea that after inventory liquidation and lease dispositions, the remaining monetizable value can be concentrated in brand rights, customer data, and residual causes of action.

Liquidating Plan and Trust Structure

Plan confirmation converted the case into a liquidating trust structure. While the early phase of Party City's second case was dominated by store-closing sales, budget governance, and lease dispositions, the later phase culminated in confirmation of a liquidating plan. 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 stated that plan releases, exculpations, discharges, and injunctions became effective on the effective 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 the effective date. The Liquidating Plan identified Elizabeth LaPuma as the liquidating trustee. The plan described a governance transition in which the liquidating trustee would become the sole officer/director/manager of each debtor after the effective date, reflecting a shift from debtor-in-possession operations to trustee-administered liquidation and claims resolution. For professionals advising creditors, this is the point where the case often becomes less about “what will happen to stores” and more about (i) reconciling administrative expenses, (ii) pursuing causes of action, (iii) resolving claims objections, and (iv) making distributions under a defined waterfall and timing framework.

Post-effective deadlines mattered for administrative expense management. The Effective Date Notice referenced several post-effective deadlines that are particularly important for administrative claimants and professionals. The notice stated that an 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 effective date of September 22, 2025, those timelines point to late October 2025 for administrative expense submissions and early November 2025 for final professional fee applications. In liquidation cases, these deadlines are not merely procedural: administrative expense pressure can determine whether a liquidating trust has sufficient cash to make meaningful distributions to prepetition creditors and whether disputes over postpetition services (including liquidation agent economics and lease-related expenses) will dominate the trust’s early work.

The Effective Date Notice also described a sweeping executory contract and unexpired lease disposition default: as of the effective date, all executory contracts and unexpired leases were deemed rejected unless previously assumed, already expired/terminated, or subject to a pending motion to assume or reject. That kind of deemed rejection framework is typical in liquidating plans because it provides a clean “cutoff” for the trust to move forward without carrying open contractual liabilities, while leaving room for selected assumption-and-assignment transactions that may have been in progress.

Claims Administration and Professional Advisors

Claims and noticing administration: Kroll's role. The court authorized Kroll Restructuring Administration LLC to serve as claims, noticing, and solicitation agent. In addition to maintaining the official claims register and acting as the repository for proofs of claim, the order described the operational mechanics for handling claims submissions (including an electronic filing interface and a mailing address), as well as the compensation structure (monthly detailed invoices treated as administrative expenses) and restrictions on service cessation absent a court order.

Professional teams and the “second-filing” reality. While Party City’s second case was a new filing, it occurred close enough in time to the first case that the professional ecosystem and advisory roster remained a meaningful part of the overall story. A law firm summary of Party City’s 2023 restructuring listed advisors including Paul, Weiss, Rifkind, Wharton & Garrison LLP as company counsel, Moelis & Company as investment banker to the company, AlixPartners as financial advisor, and A&G Realty Partners as real estate advisor, alongside Davis Polk and Lazard for an ad hoc creditor group. The second case’s liquidation framing also put liquidation partners and real estate auctioneers at the forefront of the public narrative, including Gordon Brothers as the liquidation partner and A&G as a reported lease auctioneer in the liquidation phase.

Party City’s public messaging and filings reflected a liquidation scenario in the second filing: the store fleet went into liquidation quickly, and the case later moved to a liquidating plan and liquidating trust focused on claims reconciliation and distributions rather than a reorganized operating company.

Frequently Asked Questions

When did Party City file its second chapter 11 case (the 2024 filing)?

Party City filed its second chapter 11 case on December 21, 2024.

Where was the Party City 2024 bankruptcy filed?

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, but the second filing proceeded as a liquidation rather than a continuation of that reorganization plan.

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, shifting the case focus from store operations to claims reconciliation, asset monetization, and distributions under the plan.

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.