True Religion exits bankruptcy, shedding $358M in debt
- True Religion has exited bankruptcy less than four months after filing for Chapter 11 protection in July, the denim retailer said in a press release Friday.
- The retailer’s reorganization plan, approved in court Oct. 5, called for reducing its term loans from $471 million to $113.5 million and extending its debt maturities to 2022. The company said it will "substantially" reduce its yearly debt servicing obligations, "clearing the way for continued investment and company growth."
- Citizens Bank, which provided $60 million in bankruptcy financing, is also providing an exit loan of $60 million, according to the release. True Religion said it made profit of $13.6 million through September, up 46% compared to the same period last year.
True Religion is among the retailers this year to use the Chapter 11 process in a well-planned effort to restructure its debt and reconfigure its operations.
The company’s CEO, John Ermatinger, said in a statement last week, "With substantial debt burden removed, we are eager to turn our full attention to implementing our forward-thinking strategy, including improving our retail operations, new partnerships and growing the brand’s digital presence."
Like Payless, Gymboree and rue21, True Religion emerged with less debt, a leaner store footprint and optimistic words about its future. All three of the retailers mentioned above entered Chapter 11 with thought-out restructuring plans that had the support of lenders.
Those were necessary steps to their survival in the short term. Over the long run, each of the restructured companies will have to contend with a retail environment that is burning healthy and unhealthy companies alike. rue21, for example, pointed to "a general downturn in the retail industry" and the "shift away from brick-and-mortar retail sales to online channels" as reasons for its bankruptcy filing this year.
None of those broader trends has reversed since True Religion, rue21 or the others exited bankruptcy this fall. However, taking debt off their books and closing unprofitable stores at least frees up money to invest in their remaining stores, marketing and e-commerce operations.
These investments are likely necessary for survival, but they won’t guarantee success in a quickly changing and highly competitive retail world. At the management level, retailers emerging from restructurings must have "a clear strategy of where growth is going to come from" and who their customers are, Deb Rieger-Paganis, managing director at consulting firm AlixPartners, told Retail Dive in an earlier interview. More, reorganized retailers have to "fix the business problems," she said. For struggling retailers, that often entails building up too much inventory, which companies often do to maintain liquidity from asset-backed lenders, Rieger-Paganis added.
Along with closing stores, companies have to reduce their corporate staffs to get their "overhead structure aligned with strategy, get the right people in the right places," Rieger-Pagani said. "You can’t do the same amount of work as before, so you have to do what you can to get some of the complexity out of the business."
- press release True Religion Emerges from Bankruptcy
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