Bankruptcy Lawyer Bryan W. Stone answers the question: “What is a small business bankruptcy ?”
“Retailer’s dream” isn’t a phrase that one usually thinks about when it comes to bankruptcy. However, the surfwear retailer Pacific Sunwear of California Inc. (“PacSun”), who recently filed for Chapter 11 protection, has had its bankruptcy case described by Bloomberg analysts as a “distressed retailer’s dream.”
While it might be difficult to imagine what could be so dreamy about filing for bankruptcy, anyone who has ever availed themselves of its protection knows that doing so occurs in situations where the salvageable result is far preferable to the alternative; in short, when creditors are knocking down your door and your debt-to-asset ratio is paralyzing, everything is relative.
However, PacSun’s bankruptcy is a great reminder that filing for bankruptcy isn’t the end of the world—or even a business. The clothing retailer just won court approval for its final restructuring plan to exit bankruptcy, and the final plan is going to allow PacSun to emerge from the Chapter 13 without having to liquidate or shutter a large number of its stores.
Such is the goal of many a company headed into bankruptcy, although this often fails. Competition from online merchants and big box retailers in recent years has driven numerous well-known mall-based and other storefront chains into bankruptcy, and not all of them came out of it in PacSun’s shape: Sports Authority Inc. filed for Chapter 11 this March with plans to restructure by closing over 100 of its 463 stores, but ended up liquidating. Hancock Fabrics planned to close only 70 of its 250 locations when it filed earlier this year, but wound up having to sell itself to liquidators after failing to attract buyers. The fabrics chain closed all of its locations, including five (5) in Charlotte, shortly thereafter.
Meanwhile, PacSun entered bankruptcy with about 590 stores. Upon its exit from bankruptcy, it will only have had to close between 10 and 20 of those stores.
This is not to say that the restructure has not come without sacrifice. Before filing for bankruptcy, PacSun had tried to get its debt under control on its own, reversing a failed expansion strategy and closing hundreds of its storefronts. The company’s April bankruptcy filing came shortly after it reported a fourth-quarter loss of $10 million.
Once it entered Chapter 11, PacSun engaged in talks with the private equity firm Golden Gate Capital, who is also the company’s senior lender. The two parties reached a deal where Golden Gate will reduce the amount it is owed by PacSun from $88 million to about $30 million in exchange for all of PacSun’s stock. Golden Gate has also agreed to invest an additional $20 million in PacSun’s operations, probably in some form of new debt.
Wells Fargo also agreed in the deal to provide the reorganized PacSun with a five-year $100 million revolving line of credit that is subject to certain conditions.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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