PacSun Files for Chapter 11 Bankruptcy
PacSun filed for Chapter 11 bankruptcy protection on Thursday, April 7, being the latest of several Southern California clothing ventures to end up in bankruptcy court.
In recent weeks, the surfwear retailer for teenagers and young adults hired FTI Consulting Inc. and investment bank Guggenheim Securities to help restructure its debt that must be paid by the end of this year.
The Anaheim, Calif. retailer with nearly 600 stores has worked out a deal with private-equity firm Golden Gate Capital that involves swapping debt for equity after PacSun emerges from Chapter 11. Golden Gate Capital will convert more than 65 percent of its term loan debt into equity in the reorganized company and provide a minimum of $20 million in additional capital in the reorganized company.
Under the plan filed in U.S. Bankruptcy Court in Wilmington, Del., all suppliers will be repaid in full, with half the money coming once the company exits bankruptcy and the rest to be paid by Dec. 15. The company said in court documents it wants to be out of bankruptcy within 120 days.
Wells Fargo has agreed to lend the company as much as $100 million to use while it reorganizes in bankruptcy and to provide a five-year $100 million revolving line of credit.
Increasing competition from fast-fashion retailers and a shift in fashion trends have contributed to PacSun’s and other retailers’ woes. The company, founded in 1980 to bring the beach to the people, hasn’t turned a profit since 2008.
For fiscal 2014, the company reported a $29.4 million loss on $826.8 million in revenues. For fiscal 2015, whose results were reported on Thursday, the company had an $8.5 million loss on $801 million in revenues. Same-store sales for 2015 were down 2.6 percent.
In recent months, clothing companies such as American Apparel, Quiksilver and Wet Seal filed for bankruptcy protection, and Aeropostale is reported to have hired advisory firm Stifels to looking into strategic alternatives.
PacSun’s chief executive and president, Gary Schoenfeld, was hired in 2009 to take over for Sally Frame Kasaks. Previously he had been the CEO and president of shoemaker Vans Inc.
Schoenfeld blamed the company's dire financial situation on previous CEOs who overexpanded. At one time, PacSun had nearly 1,000 stores.
"Through this restructuring, we plan to solve the two structural issues that operationally we could not fix on our own," Schoenfeld said in a statement. "First is a very high occupancy cost of approximately $140 million per year, and second is nearly $90 million of long-term debt [owed to Wells Fargo and Golden Gate Capital] coming due later this year. The bankruptcy process gives us the ability both to fix our balance sheet by reducing our long-term debt by more than 65 percent and reduce our annual occupancy costs, either through landlord negotiations or lease rejections."