David's Bridal misses debt payment, setting stage for restructuring
UPDATE: October 17, 2018: In a statement to Retail Dive, a spokesperson for David's Bridal described the missed interest payment as a "strategic decision" and said: "Our financial outlook is strong and we have ample liquidity to meet our key business objectives today and in the future." The spokesperson added that talks with lenders "are continuing in good faith and have been constructive" and are aimed at reaching "a mutually agreed upon resolution designed to strengthen our balance sheet so we can increase our financial flexibility and further invest in our business." In the meantime, the company does not expect "this process to materially impact our business or interfere with day-to-day operations or our relationships with vendors and customers."
- David's Bridal missed an interest payment on $270 million in unsecured notes, according to a Tuesday press release from S&P Global emailed to Retail Dive. The ratings agency downgraded the apparel retailer's credit rating to a level indicating selective default. David's Bridal did not immediately reply to Retail Dive's request for comment.
- The missed payment sets into motion a 30-day grace period with debtholders before the retailer is fully in default.
- S&P analysts said in the release they believe David's Bridal is "highly unlikely" to make the debt payment as the company tries to preserve its liquidity. They added that a debt restructuring "either out of court or through a court reorganization" is "likely in the near future."
David's Bridal has been trying for the better part of a year to reduce debt obligations and build in some financial wiggle room. S&P has downgraded the retailer several times during that period as the risk of default — either through a distressed exchange or a bankruptcy — has heightened.
Debtwire reported in May that David's Bridal had brought in investment banking advisory firm Evercore to help with its financial options. In the preceding months, according to Debtwire, creditor groups formed in anticipation of David's Bridal making a deal with some lenders, which could include spiriting off its intellectual property or brand value to a protected entity in order to win an agreement, as J. Crew did last year.
Analysts with S&P wrote in June that they believed David's Bridal could announce a distressed exchange or debt restructuring within six months as the retailer continued to "report weak operating performance, and liquidity has become further constrained." Instead of announcing a deal, the company has missed a major debt payment. As was the case with Bon-Ton, among others, a missed payment can trigger a Chapter 11, should David's Bridal fail to cut a deal with lenders.
David's Bridal, which this year named a new CEO in Scott Key, has struggled for some time with declining sales and a troubled balance sheet. Analysts see a specialty retailer beset by problems in its sector, capital structure and of the company's own making. Increasing competition and "casualization" are challenging the wedding sector, according to Moody's.
But David's Bridal — owned by private equity firms Clayton, Dubilier & Rice and Leonard Green & Partners — also fell behind on its digital investments and suffered from issues in a 2016 website redesign that dropped the search rankings of some products, analysts have said. It's all led to a 30% drop in the company's earnings since 2012, according to Moody's.
The retailer isn't the only one in the space struggling. J. Crew two years ago shuttered its bridal effort, and last year bridal retailer Alfred Angelo shut down unexpectedly. More recently, Weddington Way, acquired in 2016 by Gap, said it would close all its test stores and shut down its website.
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