- California clothier used Chapter 11 to cut debt, stay open
- Reorganized company will be owned by Golden Gate Capital
Pacific Sunwear of California Inc. won court approval to exit bankruptcy after cutting debt, closing some stores and pressuring landlords to reduce rent at the malls where the teen-clothing chain does business.
“That’s every distressed retailer’s dream,” Poonam Goyal, a retail analyst with Bloomberg Intelligence said in an interview. But whether Anaheim, California-based PacSun can succeed is unclear, Goyal said. Most retailers in the U.S. have too many stores and need to cut back, she said.
PacSun tried to do just that before it filed for bankruptcy in April, closing hundreds of stores and reversing a failed expansion strategy.
Under the reorganization plan approved Tuesday by U.S. Bankruptcy Judge Laurie Selber Silverstein in Delaware, PacSun will give all its stock to affiliates of private equity firm Golden Gate Capital, its senior lender.
In exchange, Golden Gate will reduce the amount it’s owed by PacSun to about $30 million initially from $88 million, Gary Schoenfeld, the retailer’s chief executive officer, said in an interview. Golden Gate has also agreed to invest $20 million in the company, most likely in form of new debt, he said.
PacSun is among a handful of national retailers to get through bankruptcy recently without either liquidating or shuttering large numbers of stores. The company closed about 10 to 20 locations while in Chapter 11, its attorney Jonathan Weiss said in an interview. It entered bankruptcy with about 590 stores.
Competition from big box retailers and online merchants has driven many well-known storefront and mall-based chains into Chapter 11 this year. Not all of them emerged in the same shape as PacSun.
Sports Authority Inc. filed for bankruptcy in March with plans to reorganize by closing 140 of its 463 stores, but wound up liquidating. Hancock Fabrics Inc. had plans to close 70 of its 250 locations when it sought court protection in February, but after failing to attract a buyer willing to run it as a going concern, the company sold itself to liquidators.
Aeropostale Inc., which filed for bankruptcy in May, announced last week that a group of buyers led by mall operators Simon Property Group Inc. and General Growth Properties Inc. would keep at least 229 of its locations open -- out of the approximately 800 it had before entering Chapter 11.
The case is In re Pacific Sunwear of California Inc., 16-10882, U.S. Bankruptcy Court, District of Delaware (Wilmington).