UPDATE: September 24, 2018: The federal bankruptcy court overseeing Claire's Stores Chapter 11 case on Friday approved the retailer's reorganization plan, a major step on the way to exiting bankruptcy. In a press release, Claire's said the plan would remove about $1.9 billion of debt from its balance sheet and give it access to $575 million of additional capital. Claire's expects to exit bankruptcy by early October.
- Claire's Stores on Monday said it struck a deal with its loudest creditor — Oaktree Capital Management — that would allow the retailer to move forward with a plan to reorganize that it negotiated ahead of its Chapter 11 filing in March.
- An attorney for Claire's said at a court hearing that the agreement would allow for recovery of up to 25% of second-lien debt holders (which would include Oaktree), according to an audio recording of the hearing.
- The deal would also resolve many of the back-and-forth legal fights among Claire's, Oaktree and the retailer's other lenders. Oaktree is set to vote in favor of Claire's existing reorganization plan, after months of opposing it and trying to raise the cash to buy Claire's itself.
Ahead of filing, Claire's gave itself the best chance of exiting from bankruptcy by negotiating a plan with major lenders ahead of Chapter 11.
But just because a pre-negotiated bankruptcy plan is the smoothest path toward a successful retail reorganization doesn't mean everybody involved comes out ahead. Plenty of stakeholders — employees, landlords, vendors and lower-tier lenders among them — can get burned when a retailer restructures in Chapter 11.
Oaktree, as a second-lien noteholder, took issue with Claire's plan, as it originally would have left its class of debt holders with "pennies" on what they were originally owed, an attorney for Oaktree said this week. The investment firm also said that Claire's plan undervalued the retailer, and it forced an extended process to market Claire's business to the world. Oaktree tried to, but ultimately didn't, put together its own $1.5 billion bid for the teen retailer.
From August 2017 to August 2018, Claire's shuttered 189 company-owned stores, while boosting its concession stands by nearly 700%, to 6,631 by Aug. 4, according to financial disclosures. The explosive expansion in concessions was one reason Oaktree cited in its argument that Claire's was undervaluing itself in the reorganization plan.
Claire's net sales fell by about 0.7% year over year, to $314.4 million in the second quarter, and same-store sales increased 0.1%. The company's Q2 operating income increased about 12%, and its net loss shrunk by more than $17 million. Those results, together with a lender fight over the company's value and future, point to far better prospects for Claire's than other retailers that have gone bankrupt over the past year.