Party City Holdco Inc., the once-dominant party supply retailer, has filed a disclosure statement seeking creditor approval for a liquidation plan that would permanently shutter the iconic chain just 14 months after emerging from its previous bankruptcy reorganization. The company, which filed for Chapter 11 protection on December 21, 2024, has already closed all of its retail locations and is asking stakeholders to vote on a plan that would distribute proceeds from asset sales to creditors.
The disclosure statement, filed June 19, 2025, in the U.S. Bankruptcy Court for the Southern District of Texas (Case No. 24-90621), reveals the extent of Party City's rapid deterioration since its October 2023 emergence from its first bankruptcy. Despite implementing various turnaround initiatives including inventory optimization, workforce reductions, and store closures, the company continued to face declining sales and liquidity pressures that ultimately proved insurmountable.
"Since emerging from a chapter 11 reorganization in October 2023, the Debtors and their non-Debtor affiliates focused its efforts on implementing initiatives intended to make the Company a more modern, efficient, and profitable retail enterprise positioned for long-term growth," the company stated in the filing. "However, PCHI continued to experience the challenges affecting all major retailers, including, among other things, inflationary pressures, macroeconomic factors affecting consumer discretionary spending, contracting margins, and shifting customer preferences."
Financial Distress and Debt Structure
Party City entered its second bankruptcy with approximately $400 million in total debt obligations. The company's capital structure includes an ABL Facility with $149.2 million outstanding, a FILO Facility with $13.3 million outstanding, and Prepetition 2L Notes Claims totaling $267.5 million. The Ad Hoc Noteholder Group, which holds over 99% of the 2L Notes, also owns more than 97% of the company's equity.
The company's financial troubles accelerated in late 2024 when its ABL agent, JPMorgan Chase Bank N.A., imposed a $50 million discretionary reserve following a negative inventory appraisal by Hilco Valuation Services. This action severely constrained Party City's liquidity and triggered a default under its credit facilities on December 10, 2024, when available liquidity dropped below required minimums.
The company's performance had been deteriorating throughout 2024, with comparable store sales declining 9.5% year-over-year and consumer products sales falling 24.8% during the same period. These declines occurred despite efforts to reposition the business, including closing 27 underperforming locations since the 2023 emergence and implementing two rounds of workforce reductions affecting 680 corporate employees.
Liquidation Plan and Voting Process
The proposed liquidation plan establishes a complex distribution waterfall that requires unusual cooperation from administrative and priority creditors. Under the plan, holders of administrative and priority claims would receive their pro rata share of distributable proceeds through a three-tier waterfall: first, $5 million distributed pro rata among allowed administrative and priority claims; second, $9.8 million split equally between administrative/priority claims and 2L Notes claims; and third, remaining proceeds allocated entirely to 2L Notes claims.
Critically, the plan's effectiveness depends on administrative and priority creditors accepting less than full payment. The filing states that "it is a condition precedent to the effectiveness of the Plan that the amount of claims attributable to Holders of Administrative and Priority Claims that do not consent to the Administrative/Priority Waterfall Treatment cannot exceed $1 million."
Creditors have until July 30, 2025, at 4:00 p.m. Central Time to vote on the plan, with a confirmation hearing scheduled for approximately August 5, 2025. Three classes are entitled to vote: Priority Claims (Class 1), Prepetition 2L Notes Claims (Class 3), and General Unsecured Claims (Class 4).
Asset Sales and Settlement Agreements
Party City has been conducting an orderly liquidation of its assets throughout the bankruptcy process, with the court approving numerous asset sales to various purchasers. The company has also reached a settlement with Gordon Brothers, its liquidation consultant, regarding $6.6 million in disputed claims. Under the settlement, Gordon Brothers will retain a $1.5 million deposit, receive a $2.25 million payment as professional fees, and hold an allowed administrative claim of $2.7 million.
The company retained Paul, Weiss, Rifkind, Wharton & Garrison LLP and Porter Hedges LLP as counsel for the debtors, with Kroll Restructuring Administration LLC serving as the solicitation agent for the voting process.
Industry Context and Implications
Party City's failure represents a significant development in the retail sector, particularly for specialty retailers facing pressure from e-commerce competition and changing consumer behaviors. The company's inability to successfully emerge from its 2023 bankruptcy highlights the challenges facing brick-and-mortar retailers in adapting to evolving market conditions.
The liquidation plan warns that conversion to Chapter 7 would be "detrimental to many stakeholders" and would likely result in no recovery for holders of administrative claims, priority claims, and general unsecured claims. The company estimates that the proposed plan provides superior recoveries compared to a Chapter 7 liquidation scenario.
Party City's dissolution marks the end of a company that was once a global leader in the celebrations industry, with offerings sold in more than 70 countries at its peak. The retailer's demise underscores the ongoing consolidation and disruption in the retail sector as traditional chains struggle to maintain relevance in an increasingly digital marketplace.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 48 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.