Things are starting to look up for U.S. Retailers going through bankruptcy. Recently, more creditors are extending a helping hand and allowing a greater number of retailers to retain their stores and employees.
Since 2014, many brick and mortar retail chains such as the Limited and Sports Authority have shut down their operations. While investors and companies acquired the assets of these bankrupt retailers, in many cases they did not choose to take on the operations of the retailers because of the risk in assuming store leases and attempting to continue to operate.
Examples of Bankrupt Retailers
Things seem to be changing, however. Creditors, vendors, and landlords are seeing value in the retailers and see a way to minimize their loss by continuing to operate the stores. “We’re seeing a set of situations come together in which the constituencies have more interest in the retailer surviving than not,” said Holly Etlin, a managing director at AlixPartners LLP. AlixxPartners LLP is a consulting firm that worked on Gymboree’s bankruptcy.
Payless Shoes is the model for creditors and other interested parties working together. This August Payless came through bankruptcy and retained 19,000 of its 22,000 employees and preserved over two- thirds of their retail stores. Gymboree and Rue21 have recently come out of bankruptcy in a similar way, and were able to retain many of their stores and employees.
Creditors are seeing a greater value in forgiving some debt and keeping a strong brand going, rather than receiving pennies on the dollar through a liquidation. Many times it makes sense for creditors to extend new credit at high interest rates in exchange for a restructured balance sheet and revamped business plan. For example, investors in Gymboree agreed to keep the retailer in business by writing off much of their loan and investing $95 million in exchange for equity ownership in the company. “There is always risk taking (the company) through bankruptcy, but we believed that it was a better path with more upside versus liquidating, where the recovery is pretty minimal and you forego any upside opportunities,” said Searchlight Capital Partners LP’s Eric Sondag, one of the Gymboree investors.
Many time it benefits all involved to restructure debt- this is true when it comes to distressed retailers as well as struggling individuals. If you need to speak with one of our experienced attorneys about restructuring your debt, please contact one of our offices.