Party City, North America's largest party-goods retailer, is ready to emerge from its Chapter 11 bankruptcy proceeding with what it called an "optimized" store footprint after exiting some locations and getting better deals on leases for others.

The Woodcliff Lakes, New Jersey-based company on Wednesday reported that the U.S. Bankruptcy Court for the Southern District of Texas had approved its reorganization plan, paving the way it to come out of the Chapter 11 filing "on stronger financial footing," with nearly $1 billion in debt reduction. The retailer's equity value will be turned over to its lenders as part of the plan.

Party City and David's Bridal are some of the few retailers this year to come out of a Chapter 11 proceeding intact and continuing operations. Chains including Bed Bath & Beyond and its Buy Buy Baby banner, Tuesday Morning and Christmas Tree Shops were forced to shut down their stores and liquidate as they financially struggled or couldn't find buyers.

In its statement, Party City said it under its reorganization plan it "will move forward with a more profitable Party City store footprint, consisting of nearly 800 locations nationwide, after negotiating improved lease terms and exiting less productive locations during the Chapter 11 process."

When it filed for Chapter 11 protection in January, Party City's chief restructuring officer, David Orlofsky, said the retailer was operating 823 stores, owning 770 of them. The company at that time also franchised about 53 stores throughout the United States, Mexico and Puerto Rico. Party City also asked for court approval to walk away from 28 unexpired store leases.

In February A&G Real Estate Partners, Party City's real estate adviser, announced it would be auctioning a dozen Party City store leases in six states as part of the retailer's reorganization, the first tranche of sites to become available. Those 12 stores were part of a list of 24 the court had approved for closing at that time.

Party City closed about 60 stores as part of the bankruptcy proceeding, according to Bloomberg News. The retailer and A&G didn't immediately respond to emails from CoStar News seeking comment on Wednesday on the number of closures.

Under the reorganization plan, Party City said it it would emerge from bankruptcy "with a substantially strengthened capital structure and improved liquidity, helping to ensure the company is best equipped to continue to execute on its strategy and further enhance its market leadership as the go-to destination for all things celebration." Specifically, the plan provides for Party City's debt to be reduced by nearly $1 billion, according to the company.

“Today’s plan approval is an important milestone in completing our financial restructuring and successfully positioning [Party City] for the future,” CEO Brad Weston said in a statement. “With our debt substantially reduced and Party City store portfolio optimized, we will emerge better positioned to advance our strategic priorities, continue to innovate and elevate the consumer experience, and pursue new growth opportunities."

Weston also thanked Party City's landlords for "their support and collaboration."

When it filed for Chapter 11, Party City blamed its financial woes and declining sales on a variety of factors, including the fallout from the pandemic and consumers cutting back spending as a result of inflation.

Under the terms of the approved reorganization plan, Party City is expected to emerge with new shareholders, including the members of the ad hoc group of holders of the company’s senior secured first lien notes, who supported the restructuring. The plan provides for a new exit asset-based loan of $562 million and a backstopped $75 million new-money investment to fund distributions and payment of administrative claims under the plan, as well as the Party City's operations when it emerges.

Paul, Weiss, Rifkind, Wharton & Garrison is serving as legal counsel, Moelis & Company as investment banker, AlixPartners as financial adviser, and A&G Realty Partners as real estate adviser to Party City. Davis Polk & Wardwell is serving as legal counsel and Lazard Frères & Co. is serving as investment banker to the ad hoc group.