Claire's officially files for bankruptcy

Claire's Stores Inc has announced today they have officially filed for Chapter 11 Bankruptcy to reduce debt by 1.9 billion dollars. Like many other mall-based retailers, Claire's has been struggling due to declining mall traffic.

The retail chain said that it reached an agreement with creditors including Elliott Management Corp and Monarch Alternative Capital LP, which will provide it with about 575 million dollars in new capital. Claire's timeline for completing the Chapter 11 process is September.

Claire's files Chapter 11 bankruptcy

In 2007, Claire's was acquired by private equity firm Apollo Global Management LLC for 3.1 billion dollars. What Apollo Global Management did not foresee was how fast e-commerce would end up killing the power of malls in the United States. Elsewhere, Claire's stores have not reached the bankruptcy point as the Chapter 11 filing only includes it's American subsidiaries.

Claire's is one of the American retailers that faced the curse of a string of private equity buyouts from outside investors who loaded up on debt a decade ago and left the retailer with sizable payments. Toys R Us, which last week decided to liquidate all of its stores, is another one of those retailers.

However, Claire's says they are confident they will survive their bankruptcy plan, with hopes that the investment will be able to turn the company around. Claire's currently has no plans to close their stores, so currently retail stores will be moving forward as usual.

Claire's is lucky that unlike other retailers who have filed for bankruptcy, they are filing from a position of operational strength. The Company expects to report adjusted EBITDA for FY2017 (on a 52-week basis) of approximately 212 million dollars, up nearly 13 percent from FY2016. They also expect an adjusted EBITDA margin for FY2017 (on a 52-week basis) of approximately 16.1 percent, up nearly 170 basis points from FY2016. In addition, the Company expects its concessions business to grow by more than 4,000 stores in 2018.

The Company has commenced its restructuring process having executed a Restructuring Support Agreement (the “RSA”) with its Ad Hoc Group of First Lien Creditors led by Elliott Management Corporation and Monarch Alternative Capital LP that collectively holds approximately 72 percent of the Company’s First Lien Debt, 8 percent of its Second Lien Notes, and 83 percent of its Unsecured Notes. Pursuant to the transactions contemplated by the RSA, members of the Ad Hoc Group of First Lien Creditors have agreed to provide the Company with approximately 575 million dollars of new capital, including financing commitments for a new 75 million dollar asset-based lending facility, a new 250 million dollar first lien term loan, and 250 million dollars as a preferred equity investment. With these commitments in place, Claire’s expects to complete the Chapter 11 process in September 2018, emerge with over 150 million dollars of liquidity, and reduce its overall indebtedness by approximately 1.9 billion dollars.

“This transaction substantially reduces the debt on our balance sheet and will enhance our efforts to provide the best possible experience for our customers,” said Ron Marshall, Claire’s chief executive officer. Marshall added, “We will complete this process as a healthier, more profitable company, which will position us to be an even stronger business partner for our suppliers, concessions partners, and franchisees.”

Claire's has circa 1,600 stores in North America and like other chains with a heavy mall presence, Claire's has had to contend with declining customer traffic and online competition. It added about 350 stores between 2010 and 2013, with more than 2,700 globally by the time it made public its plans to go public.

Photo: via Claires.com