Saddled with a heavy debt load from a leveraged private equity buyout, on March 19, teen jewelry fave Claire’s Stores filed for Chapter 11 in Delaware bankruptcy court.
The company comprises 7,500 stores, concession locations, and franchise stores under the Claire’s and Icing brands. It employs approximately 10,000 people.
The company said in a statement that it is “confident” it will survive the bankruptcy process, which it hopes to emerge from by September.
Prior to the much-anticipated filing, the retailer, currently owned by Apollo Global Management, devised a restructuring plan with two of its primary lenders, Elliott Management Corp. and Monarch Alternative Capital. Under the plan, they will provide Claire’s with approximately $575 million in new capital.
“This transaction substantially reduces the debt on our balance sheet,” said chief executive officer Ron Marshall said in statement. “We will complete this process as a healthier, more profitable company.”
Marshall’s statement stressed that the company is doing well operationally, with the adjusted EBITDA up for fiscal year 2017.
The company’s main problem was having to shoulder a heavy debt load from Apollo’s 2007 leveraged buyout. The company currently has $1.9 billion in debt on its books, with $1.4 billon of funded debt due to mature next year.
“The Debtors do not believe that their current balance sheet is sustainable over the long term,” said court filing from executive vice president and chief financial officer Scott E. Hutchins.
He said the costs of servicing that debt has “impacted the Debtors’ ability to refresh store locations, drive product and growth initiatives, and further enhance their customer experience.”
Yet Hutchins also admitted that Claire’s was “not immune” from the difficult retail climate, noting that mall traffic has declined by 9 percent.
The Hoffman Estates, Illinois-based company began as wig retailer Fashion Trees founded by Rowland Schaefer in 1961. In 1973 Fashion Trees acquired Chicago-based 25-store chain Claire’s Boutiques, changing its name to Claire’s Stores Inc. In 1978, it kicked off its signature ear-piercing business; in its filing, the company boasted its punched holes in 100,000,000 ears. It purchased the older-skewing Icing chain in 1996.
The Claire’s Stores bankruptcy docket can be seen here.
(Photo via @clairesstores)