Forever 21 Files for Chapter 11 Bankruptcy Protection

Following much outside speculation over the last few months, Los Angeles-headquartered Forever 21 filed for Chapter 11 bankruptcy protection over the weekend. On Sept. 29, documents were filed in the United States Bankruptcy Court for the District of Delaware. In a press release, the company announced that its Canadian subsidiary was granted protection under the Companies’ Creditors Arrangement Act by Toronto's Ontario Superior Court of Justice.

With 549 stores across the United States and 251 international locations, Forever 21 is seeking to restructure its operations and has requested approval to close 178 stores across the U.S., according to a company representative.

"They are going to try to come out leaner and meaner out of bankruptcy and use the process to eliminate certain store locations that may not be profitable or performing as Forever 21 would like them to be performing," said Marcus Colabianchi, a partner specializing in bankruptcy and creditors' rights at the San Francisco office of law firm Duane Morris. "Over the next 30, 60, 90 days a lot of negotiating will be taking place between Forever 21 and their landlords in terms of potentially restructuring leases, terminating some leases—which they can do in the bankruptcy process, and to come out with a smaller footprint that what they currently have internationally and domestically."

In bankruptcy filings, the company revealed that it owes between $1 billion and $10 billion to more than 100,000 creditors including Simon Property Group, Brookfield Properties, FedEx and Los Angeles-based A&E Clothing Inc. The company has secured $275 million in financing from its existing lenders with JPMorgan Chase Bank, N.A, in addition to $75 million in new capital from TPG Sixth Street Partners.

“The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the U.S. and abroad to revitalize our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees," Forever 21's Executive Vice President Linda Chang, said in the press release. "With support from our key landlord and vendor constituents, we are confident we will emerge as a stronger, more competitive enterprise that is better positioned to prosper for years to come, and we remain committed to delivering the fast fashion trends that our customers have come to expect from Forever 21.”

On the company website, a letter to Forever 21 customers explained that store locations would operate as a "normal day," with an unchanged policy regarding gift cards, policies, and returns and exchanges. The letter to its customers maintained that this decision was the best move for the future of the company.

"[This] allows Forever 21 to continue to operate its stores as usual, while the Company takes positive steps to reorganize the business so we can return to profitability and refocus on delivering incredible styles and fashion you love for many years to come," the company statement said. "This does not mean that we are going out of business—on the contrary, filing for bankruptcy protection is a deliberate and decisive step to put us on a successful track for the future."

News of the bankruptcy filing follows the opening of a new Los Angeles location on Sept. 13, at the Hollywood & Highland retail center, which also houses the Dolby Theatre, home to the Academy Awards. Forever 21 was founded by founders Jin Sook and Do Won (Don) Chang in 1984 as a single boutique located near downtown Los Angeles.