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.
China, UAE strike 13 landmark deals
- Among the projects agreed in the memorandums of understanding are the building of embassies and cultural centers
- China also won approval to open the first Chinese state-owned financial services firm in Abu Dhabi’s AGDM financial center
LONDON: The UAE and China have signed 13 wide-ranging agreements to advance trade and commercial ties between the two countries.
Among the projects agreed in the memorandums of understanding are building embassies and cultural centers, increasing cooperation in the energy, agriculture and e-commerce sectors, building a wholesale market for livestock, fisheries and farm produce and investing in the world’s largest solar energy project.
China also won approval for the first Chinese state-owned financial services firm to be opened in Abu Dhabi’s AGDM financial center, according to the UAE state news agency WAM.
The agreements were ratified during the visit of President Xi Jinping, the first president of China to visit the UAE is 29 years. The top-level visit, in which he had talks with Mohammed bin Zayed, crown prince of Abu Dhabi, and Sheikh Mohammed bin Rashid, vice president of the UAE and ruler of Dubai, is a clear indication of the importance China attaches to relations between the two countries.
China is the UAE’s second largest trading partner. About 60 percent of China’s exports to the Middle East enter the region via the UAE, which itself accounts for about 25 percent of China’s trade with all the Arab world.
The UAE is also close to the route of China’s Belt and Road initiative. The multibillion-dollar project aims to revive the ancient Silk Road and develop an equivalent sea route linking China to markets in west Asia and Europe.
More than a million Chinese visited the UAE in 2017 and trade reached nearly $54.5 billion that year. On Thursday, Sheikh Mohammed bin Rashid tweeted that the UAE aims to double both of those numbers.
“We have many areas of political and economic agreements and a solid base of projects in the energy, technology and infrastructure sectors. More importantly (we have) a strong political will to start a greater phase of cooperators ad integrations,” the ruler of Dubai wrote on Twitter.
“Today, we have exemplary relations with China and a Chinese leadership that sees the UAE as main strategic partner in the region.”
President Xi arrived in Abu Dhabi on Thursday for a three-day visit. On the same day, the state-owned Abu Dhabi National Oil Company (ADNOC) announced the awarding of two contracts worth $1.6 billion to BGP Inc., a subsidiary of China National Petroleum Company, to conduct a seismic survey, searching for oil and gas sites both offshore and on an area covering some 53,000 square kilometers.
Dubai-based property developer Emaar meanwhile announced plans to build the largest Chinatown in the Middle East in the UAE.
After his three days in the UAE, President Xi will go on to Senegal, Rwanda and South Africa.