In a bid to save the company and the jobs of its 600 employees, Capitol Hill-born Rudy’s Barbershops has filed for bankruptcy and is seeking permission for a quick sale to raise cash it needs to continue after its business was wiped away by the COVID-19 crisis.

“Because the company was forced to shutter all of its operations, the company’s main source of revenue, the services it provides to its customers, has completely and unexpectedly evaporated overnight,” CEO Kathleen Trent writes in the Chapter 11 bankruptcy documents filed in Delaware last week.

Born on E Pine and an exporter of Capitol Hill style for nearly 30 years, Rudy’s is now in the fight of its financial life and is asking the court for a quick “Stalking Horse” sale to a private equity firm offering a $1.525 million lifeline and a to be determined bid for the company.

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“Given that the Company’s six hundred (600) employees are out of work, and almost all are not currently being paid, the very short time periods set forth in the Milestones are critical to ensure the Company can be sold as a going concern and to ensure that the employees will not be without pay for any longer than is necessary,” Trent writes. “Absent an extremely quick sale to the Stalking Horse Bidder (or another purchaser), any hope of reopening the business and saving the employees’ jobs will be lost forever. Time is of the essence given the unprecedented situation facing the country.”

CHS has not yet reached Trent or a representative for Rudy’s for comment.

Stalking horse bids — a reference to a hunter’s use of a horse to gain close access to their quarry — typically refer to a pre-bankruptcy agreement for a takeover that sets a price for any acquisition. Under the proposed terms, Rudy’s and Tacit Capital would have 30 days to work out its bid a the equity firm helps with the near term cash crunch.

The first Rudy’s was opened in January, 1993 on E Pine, by friends Alex Calderwood, Wade Weigel and David Petersen. According to company lore, the trio was looking to make a place where they could hang out with their friends. Rudy’s first East Coast location opened in New York in 2012. There have also been locations in Portland, Nashville and Atlanta. All 25 of its stores are company-owned and its 600 employees are full-time with health benefits, the company told CHS in 2018 on its 25th anniversary.

MORE TO COME?

The economic impact of the COVID-19 crisis is already being felt with unemployment claims in Washington and the nation spiking and sectors including personal services like hairstylists and barbers as well as hospitality, and food and drink occupations being exceptionally hard hit. A federal funding package will make for small relief for some. For others, the Rudy’s bankruptcy could be a sign of things to come. But the company behind 8 million or so haircuts isn’t typical of many small companies now struggling on Capitol Hill. It’s the larger efforts with more advanced, higher stakes investors that could quickly find themselves in a similar position.

In 2014, Northwood Ventures, a New York-based venture capital and buyout specialist, became a majority investor in Rudy’s as the chain also opened a second shop on the Hill in 2015 on 15th Ave E. Today, Rudy’s is mostly focused around Seattle with shops in Ballard, Belltown, Columbia City, Fremont, Laurelhurst, Phinney Ridge, Pioneer Square, University District, West Seattle, Bellevue, Microsoft’s campus, Redmond, Tacoma, and the two on Capitol Hill.

Northwood continues to hold 43% of the company while private equity firm Partnership Capital Growth owns 37%, according to the filings. The company produces a steady flow of cash — some $26.6 million in 2019 — but lost more than $2 million last year, according to the bankruptcy documents. In the filings, Rudy’s lists total assets of between only $100,000 to $500,000 and debt between $1 million and $10 million. The CEO says the company was struggling even before the outbreak and has been looking for a buyer or a merger since 2018.

Its top creditors owed money include more than $100,000 to Rogue and Company hair products, another $90,000 to American Express, plus landlords in Los Angeles and Charlotte, North Carolina.

Calling the Rudy’s “existing workforce” a “crucial aspect” of the company’s ability to “continue as a going concern,” Trent says its bailout deal is structured to create “a clear and rapid path” for reopening the shops.

“The goal of these Chapter 11 Cases is to sell the Company to a financially viable purchaser that will reopen the Company’s unique barber shops as soon as possible and re- employee as many employees as possible once the pandemic has subsided,” she writes.

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