Bankrupt US retailers begin to catch a break
Bankrupt US retailers begin to catch a break
The new approach marks a turning point for the beleaguered sector, which has seen at least 19 brick-and-mortar retail chains shut down the bulk of their operations since 2014.
Until this year, most bankrupt retailers, including American Apparel, Sports Authority and The Limited, were dismantled during their bankruptcy process. Investors and companies acquired their intellectual property and other assets, but refused to take on their business as a going concern because they saw little value in assuming costly store leases. Instead, they often opted to revamp some of the battered brands online.
However, several creditors, landlords and vendors now see more value left in some retailers, and are seizing on an opportunity to minimize their own losses in the retail rout.
This could spell a slowdown in the decline in brick-and-mortar retail jobs, which fell by more than 100,000 this year, as more than 6,000 stores shuttered under increasing pressure from competition among traditional retailers as well as e-commerce firms such as Amazon.com.
“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, a consulting firm that worked on the bankruptcy of Gymboree.
Jeans company True Religion Apparel Inc. and perfume wholesaler and retailer Perfumania Holdings Inc. are set to emerge from bankruptcy with at least some of their stores in operation, according to interviews with bankruptcy attorneys and a Reuters review of financial information of more than 15 retailers shared with bankruptcy courts.
These chains will follow a path blazed by Payless ShoeSource, which in August emerged from bankruptcy while keeping more than 3,400 out of its 4,200 stores worldwide, and preserving 19,000 of its 22,000 employees.
Last month, teen clothing shop rue21 Inc. and children’s apparel chain Gymboree Corp. came out of bankruptcy in similar fashion, preserving much of their store footprints and employee headcount.
Most of these retailers were owned by private equity firms, which saddled them with debt in a risky bid to juice returns. But in bankruptcy talks, the chains are arguing successfully that they can generate enough cash to withstand the sector’s woes if their debt mountains are slashed and payment obligations eased.
Creditors, landlords and vendors are more receptive to this approach, because their own financial projections show that liquidations would result in a limited recovery of what they are owed, according to interviews with debt investors and bankruptcy court filings.
Had rue21 liquidated, for example, many loan holders would have seen almost the entire value of their investment wiped out by the end of its five-month bankruptcy process, according to bankruptcy court filings and people familiar with the matter.
This new reality offers grounds for optimism for Toys “R” Us, which last month became the largest retail bankruptcy in 13 years. The biggest US specialty toy retailer plans to emerge from Chapter 11 bankruptcy with many of its about 1,600 stores, employing 64,000 people, remaining open.
Toys “R” Us plans to argue that its annual cash flow of roughly $800 million would make it viable if its $5.2 billion in debt is significantly reduced, according to court papers and people familiar with the matter.
If a retailer’s brand is strong enough and its operations can be improved, creditors see greater value in forgiving some of their debt in exchange for equity stakes, rather than recouping pennies on the dollar in a liquidation.
Many landlords that rent out store space are also willing to provide relief rather than seeking another tenant amid a glut of unused mall space. Rue21’s landlords granted rent reductions of about 20 percent on its remaining 758 stores, according to a person who asked not be identified because the terms of the lease deals are not public.
Supplier support is also critical. Vendors can offer longer payment terms, helping retailers free up working capital to operate. They are often promised full repayment on their claims in return.
Hong Kong-based Li & Fung, a supply chain manager that helps retailers work with apparel and accessories makers, gave Gymboree a 75-day repayment period in exchange for full payment on its claims in the bankruptcy, people familiar with the matter said.
Before Gymboree filed for bankruptcy, the retailer also extended Li & Fung a $20 million secured claim, helping keep merchandise flowing to its stores, the sources added. Li & Fung declined to comment.
Toys “R” Us has also fought to keep suppliers onboard, accelerating its plan to file for bankruptcy to be able to pay them. It has been making progress in winning back vendors who curbed shipments over payment fears.
Glencore launches $1 billion additional share buyback
- Glencore said in July it would buy back shares worth up to $1 billion in a program of purchases running to the end of 2018
- Many mining stocks have pared gains over the past few months as metals markets weakened
LONDON: Commodities trader and miner Glencore said on Tuesday it would repurchase more of its shares worth up to $1 billion, increasing the size of an existing buyback program that followed a subpoena from US authorities.
Glencore said in July it would buy back shares worth up to $1 billion in a program of purchases running to the end of 2018. It has now extended the program to the end of February 2019.
The London-listed miner, with a market capitalization of $61 billion, announced plans to repurchase shares after the US government investigation into bribery and corruption sent the stock down more than 15 percent since the start 2018.
Companies across the mining industry have been handing money back to shareholders after a recovery from the mining and commodity crash of 2015-16 and in response to pressure from investors not to spend cash on buying assets that they say may never deliver returns.
Global miner Rio Tinto said last week it will return $3.2 billion to shareholders from its sale of Australian coal assets in addition to existing buyback programs.
Glencore’s share price had already been hit by concerns about political risk in Democratic Republic of Congo, where it mines just over a quarter of the global output of cobalt, because of a mining code that was signed into law in June.
After publishing first-half results just below analyst forecasts in August, the company, which has aggressively slashed its debt since 2015, said it would favor share buybacks over deal-making.
Many mining stocks have pared gains over the past few months as metals markets weakened in response to global trade tensions and uncertainty about Chinese demand.