David's Bridal prepares for possible Ch. 11 as creditor talks continue
UPDATE: November 9, 2018: David's Bridal is preparing to file for Chapter 11 as early as next week, according to the news service Reorg, which cited unnamed sources. The filing would come with commitments of $50 million to $75 million in debtor-in-possession financing from current lenders to allow the retailer to restructure. Reorg also reported that David's Bridal's first-lien lenders would take over "substantially all" ownership in David's Bridal after it reorganizes in bankruptcy.
- David's Bridal is preparing for a possible Chapter 11 filing if discussions with creditors do not produce an out-of-court deal to restructure its debt, a source familiar with the matter told Retail Dive. The company does not anticipate significant store closures or changes to operations as a result of any potential in-court restructuring, the source said.
- According to Bloomberg, which reported on the potential filing Monday, talks with creditors "remain fluid" after negotiations around previous restructuring proposals broke down over a lack of financing and agreement on terms of the deal.
- Reiterating previous statements, a David's Bridal spokesperson told Retail Dive, "We are engaged in discussions with our lenders in order to reach a mutually agreed upon resolution designed to strengthen our balance sheet so we can increase our financial flexibility and further invest in our business." The retailer in October said it made a "strategic decision" to miss a payment on $270 million in debt, setting into motion a 30-day grace period set to expire next week.
For months, analysts have expected David's Bridal to seek a deal to reduce its debt, downgrading the retailer along the way on the expectation that the company won't repay on the original terms.
Plenty of retailers have forged deals out of court — among them J. Crew, Charlotte Russe and others. Plenty more go to bankruptcy court with creditor deals for reorganization in hand. The latter group includes Gymboree, Payless, rue21, Claire's Stores and several others. (In the case of Claire's, the court process, even with a prepared plan, was contentious but ultimately successful.) What no one wants is to be forced into Chapter 11 without an agreed-upon plan, as was the case with Toys R Us and Bon-Ton.
As Reorg reported in late October, David's Bridal — owned by private equity firms Clayton, Dubilier & Rice and Leonard Green & Partners — has talked extensively with key stakeholders. Reorg Senior Reporter Chelsea Frankel told Retail Dive then that David's Bridal's three main creditor constituencies in the negotiations are Oaktree Capital, a lender and majority noteholder — and a feisty participant in the Claire's Stores bankruptcy; Solace Capital partners, another noteholder; and a lender group that includes several funds. Cutting an out-of-court or in-court restructuring deal likely hinges on finding enough overlapping interest and agreement among those groups and the retailer.
Like a lot of private equity-owned specialty retailers, David's Bridal has struggled to keep up in a swiftly changing landscape while trying to pay down its debt load, which according to Bloomberg is at about $760 million. Moody's has pointed to the "casualization" of the sector, as well as David's Bridal's capital structure and late-coming digital investments, as threats to the company.
A spokesperson for the retailer told Retail Dive in October that the company's "financial outlook is strong" and that it didn't expect the missed debt payment or talks with creditors to "materially impact our business or interfere with day-to-day operations or our relationships with vendors and customers."
A possible Chapter 11 filing wouldn't necessarily change that. If the company can make a deal with creditors, even a bankruptcy could be a relatively orderly affair, as demonstrated by Payless, rue21 and others recently.
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