UPDATE: Oct. 20, 2020: True Religion has officially exited Chapter 11 bankruptcy. CEO Michael Buckley said in a press release that the in-court restructuring "allowed the company to reduce its operating costs and lower its debt load, and emerge a profitable, lean operating company with a healthy balance sheet."
Backing the denim specialist's reorganization were lender and equity holder Farmstead Capital Management, as well as Crystal Financial, another lender, and landlord Simon Property Group, True Religion said.
- True Religion is poised to exit bankruptcy soon after receiving court approval for its plan to reorganize under new ownership in Chapter 11 this week.
- Under the plan, the apparel seller would turn most new equity over to existing lenders. A $65.8 million settlement with a group of term lenders allowed the retailer to finalize the plan's terms, according to a spokesperson for law firm Cole Schotz, which is representing True Religion in its Chapter 11 case.
- True Religion filed for bankruptcy in April after it temporarily closed its footprint amid the COVID-19 pandemic. It currently runs 50 stores, according to court papers, down from the 87 the retailer had when it filed.
True Religion was among the first retailers driven into court to ask for bankruptcy protection as the pandemic crisis created financial chaos for struggling retailers throughout the industry.
With its stores closed, the denim specialist's revenue fell by some 80%, True Religion's CFO said at the time that it filed. In its filing, the retailer asked for a break on rent, which would become a chorus among the parade of retailers to file for Chapter 11 through the spring and summer.
Founded in 2002 by Jeff Lubell, True Religion made its first trip through bankruptcy in 2017, one of a long line of mall-based, private equity-owned apparel retailers to file for bankruptcy that year as debt loads ran into a rapidly shifting retail market.
Its first Chapter 11 gave True Religion a chance to reduce its debt, but problems persisted. Profits and sales started falling in 2019 because of "product designs which were not attractive to True Religion's traditional customer base," as well as e-commerce discounting to clear slow-moving inventory, according to the CFO.
Over a one-year period ending Feb. 1 — well before the pandemic ripped through the U.S. — True Religion had a net loss of $50 million on $259 million of revenue. The company responded by changing out CEOs, cost cutting, re-focusing product range and other measures, including trying to negotiate an out-of-court deal with lenders that didn't pan out.
Its second bankruptcy gives True Religion another chance to ease its balance sheet, slim down its footprint and try to find solid ground in a market still largely shaped by COVID-19. That the retailer was able to reorganize in bankruptcy, where others, including fellow apparel retailers like RTW Retailwinds, have liquidated, shows that key stakeholders see value in the denim maker going forward.