PacSun files for Chapter 11

Faced with increased competition from fast-fashion retailers as well as online rivals, PacSun has opted for bankruptcy protection.

Pacific Sunwear of California Inc. (PacSun), a teen apparel, has succumbed to increased losses amongst fierce competition in the industry and will be filing for bankruptcy protection under chapter 11.

In early morning trading, the company’s shares fell by 42% to a record low of 5 cents.

Golden Gate, a private investment firm, plans on taking the company private, once it has emerged from bankruptcy protection and will convert more than 65% of its debt to equity. Additionally it will also pump in $20 million in capital, said the company in a statement.

In 2011, Golden Gate had lent PacSun nearly $60 million.

According to a court filing, the Anaheim, a California-based retailer has listed assets in the range of $50 million to $100 million, and liabilities of between $100 million and $500 million.

As per information provided in regulatory filings, PacSun’s top creditors include Nike Inc. to whom it owes $5.7 million and the Simon Property Group, a mall operator, to whom it owes $3.8 million. PacSun has also disclosed it had a debtor-in-possession credit agreement with Wells Fargo Bank for $100 million.

Its top investors includes Adage Capital Management LP with a stake of 14.1% and GI2 Ltd, which has a 28.6% stake.

It has further disclosed that it will continue to operate all of its 600 stores and does not foresee the bankruptcy proceeding having any impact of its employee strength.

Its subsidiary, Pacific Sunwear Stores Corp, has in a separate filing disclosed that it has $100 to $500 million in assets and liabilities.

PacSun, which retails the Kendall and Kylie Jenner clothing line, has been able to report a profit only once in the past six quarters as increased competition from online rivals and fast-fashion retailers have weighed down its sales chart.

Earlier in March, Aeropostale, a rival had said it was exploring strategic alternatives, including a sale.

PacSun’s fourth-quarter sales had risen by 0.5% to $232.9 million. Its stock has fallen by 96.6% in the last 1 year as of Wednesday’s closing.

The case is in the United States Bankruptcy court, District of Delaware, Case No: 16-10882.

Categories: Entrepreneurship, Regulations & Legal, Strategy

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