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In fight to survive pandemic crisis and save 600 jobs, Capitol Hill-headquartered Rudy’s Barbershops declares bankruptcy

Rudy’s in sunnier times

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 2014Northwood 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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20 thoughts on “In fight to survive pandemic crisis and save 600 jobs, Capitol Hill-headquartered Rudy’s Barbershops declares bankruptcy” -- All CHS Comments are held for moderation before publishing

  1. This will not be the last of these venture capital buyouts.

    Really unfortunate, and yet another testament to how we need some clarity on just how long this complete shutdown of our economy and society is going to last.

    May 5th, according to Inslee…but I think we all know that will be extended with approx. 100% certainly.

    So….June? July? August? Who knows, really?

    The longer this lasts, the more carnage there will be. But we also need some clarity and a ***real*** plan as to how this will unfold.

    As of now we are still, inexplicably, in reaction mode: shut it all down, wait it out, with no idea of what the near to medium term will actually look like other than “closed for business.”

    This is probably the biggest failing of Inslee and state/local government to date.*

    *The caveat here is that, yes, by and large Washington has done well in its response, but that doesn’t mean there should be no criticism. And, more than this, it is ***obvious*** that there is no leadership whatsoever at the federal level, nor will there be as we have a failed game show host/casino grifter/obviously mentally ill senior citizen at the helm of our executive…what that means is that response should be coordinated between states, with governors banding together to coordinate action. Why on earth is this not happening? Why on earth are Gavin Newsom, Jay Inslee, and Oregon’s Kate Brown not coordinating the West Coast response????

    • So you expect our elected officials to be clairvoyant now? It is impossible and would be irresponsible to set a date certain. Facts will determine when it is safe to start reopening. And it will most likely be very gradual.

      • Exactly. PD seems to have a (probably long-standing) opposition to Governor Inslee, and here he is expressing that irrationally.

    • Inslee has said repeatedly that the virus and spread will set the timeline. No one, including the state government, can say with any useful level of confidence what either the caseload or the treatment resources will look like in May.

      If you want the closest thing we have to a prediction (and the information that the state is relying heavily), here it is:

      1. https://covid19.healthdata.org/projections – change the green “United States” to “Washington” so you’re looking at state-level forecasts.

      2. https://www.aei.org/research-products/report/national-coronavirus-response-a-road-map-to-reopening/ – scroll to the “Trigger for Moving to Phase II” section.

      Although WA is closer to meeting those 4 constraints than most states, Inslee doesn’t have any way of predicting when they’ll be reached.

      • T: Thank you for sharing the links. And it would be irresponsible for Inslee to claim certainty with some prediction. Other factors are the Federal Response, the fact that state borders aren’t virus protection, and the varying orders of magnitude by which COVID-19 cases revealed by tests reflect the actual number of cases present. As this is a comment thread, I’ll just add that I think part of the OP’s frustration on this is the natural desire to want to know because that gives us some sense of control over the situation. In this case, it’s more honest to say we don’t know, and do what we can to get to a place in which we do. But with the federal government blocking progress and the majority of the media not holding the federal government accountable to reality (letting Trump control the spin), I personally think this will go on for over a year, repeatedly sparking. Luckily, I’m not a scientist, but that’s just the reality I’m seeing. The other factor in all this is the economic impact can directly result in death (starvation, lack of health insurance/health access [Trump didn’t reopen the health insurance marketplace for the 38 states for which people get ACA through that marketplace, whereas Inslee reopened the WA Health Benefit Exchange already for new enrollments], mental health issues putting lives at risk, the vast increase in gun purchases, increased hate crimes, and all other things Trump and his supporters (whether they are vocal or silent), all on some level seem to actually want for some horrific reason. Meanwhile, this all blocks the efforts to get out the vote for Democrats (federal and down ballot), which I do think he does want. I think he thinks it’s “killing all the right people” (however he defines that). Meanwhile, in better news… (I got nothing).

    • I am in constant wonder and amazement at the wonderful things capitalism has provided me. When I was in high school, I am mid-thirties now, the prosperous capitalist oil-state of Venezuela was taken over by socialist Hugo Chavez and not twenty years later the place has fallen into terrible despair. Capitalism is not perfect, it is a human institution after all, but it is far superior to any other economic system.

      • someone mentions capitalism in a bad light and we get from 0 to Venezuela in less than 60 seconds, what a goddamn treasure we are

      • we are in the midst of a global pandemic, with thousands and thousands dead, and we get from 0 to someone bitching about capitalism in less than 60 seconds, what a goddamn treasure we are

  2. I’ve been contemplating whether my first mission after the lock-down would be the barber’s chair or a bar stool. Looks like that decision is being made for me…

  3. I want to acknowledge Rudy’s as a long standing business and part of the fabric of our community. I moved here in 1995 and Rudy’s was one of the first businesses I frequented. Thank you to Rudy’s and all the people who have worked there for the memories and for being part of the character and flavor of this neighborhood. I wish nothing but the best for all of you.

    • I concur! I’ve been getting my Rudy’s hair on since 2008; shortly after moving back to Seattle and cutting my once long hair.

      My heart goes out to all Rudy’s staff! I can only HOPE that once we find a “new normal” that Rudy’s — or some collective there of — will be around. If so, i’ll most definitely be back the SECOND we all can.

      Big hugs to Rudy’s!!!

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