True Religion enters Chapter 11

September 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

September 2017 Issue

Following months of speculation, designer denim retailer True Religion Apparel Inc has become the latest brick and mortar retailer to file for Chapter 11 bankruptcy protection in the US, as companies continue to struggle to come to terms with the new industry paradigm.

True Religion, founded in 2002, joins a list of retailers, including American Apparel LLC and Payless ShoeSource Inc, who have filed for bankruptcy protection in recent years. Indeed, it was the 23rd retailer or consumer-oriented company to file for bankruptcy protection in 2017. The company aims to exit bankruptcy in about four months, according to court papers.

According its bankruptcy filing, True Religion began to experience financial difficulties from 2013 as consumers embraced online shopping and as clothing tastes began to shift. Its products, which were very popular for a period, arguably failed to move with the times.

“The volume of retailers either going out of business, over-inventoried or closing a significant number of physical locations has created a highly competitive promotional environment”, and as a result the company had to offer big sales to drive traffic, True Religion said in its bankruptcy filings. For its fiscal year to 28 January 2017, the company’s direct-to-consumer sales netted $273m, or nearly 74 percent of revenues. Its wholesale business in the Americas brought in $54m, or nearly 15 percent of revenue. For the year, the company lost $78.5m on $369.5m in revenues.

The company filed for Chapter 11 in the US bankruptcy court in the District of Delaware, and listed assets and liabilities in the range of $100m to $500m. The company has reached a restructuring agreement with lenders, which will reduce the company’s debt by over $350m, the company said in a statement. Under True Religion’s restructuring plan, agreed by its owner, private equity firm TowerBrook Capital Partners, the company’s lenders will receive most of the equity in the reorganised company and debt will be reduced to $140m.

The company went private in 2013, when it was acquired by TowerBrook for $835m, and shortly after “began experiencing declining sales caused by the general trend of consumers [moving] away from traditional retail to online shopping,” Dalibor Snyder, True Religion’s chief financial officer, said in a court filing.

During the restructuring process the company will continue to operate, thanks to a loan facility worth up to $60m agreed with Citizens Bank N.A.

“By dramatically improving our capital structure 24 months in advance of our term-loan maturity, we will continue business operations as usual and provide our employees and business partners the long-term stability they need,” said John Ermatinger, president and chief executive of True Religion. He added, “We are taking an important step to reduce our debt, reinvigorate True Religion’s iconic brand and position the company for future growth and success.”

The company intends to improve its e-commerce capabilities while retaining some of its existing stores. The company has 621 full-time employees and 1084 part-time employees spread across 128 stores in the US and 11 outside the country; its products are sold at around 500 locations across the US, Mexico and South America. The company did close around 20 locations in 2016 and reduced its workforce by around 25 percent to cut costs, but these moves were insufficient in the face of the changing apparel market. The company’s stores made up almost 75 percent of its total net sales for its most recent fiscal year. It also sells its denim through department stores including Nordstrom, Bloomingdale’s and Sakes Fifth Avenue.

Trade creditors “critical” to True Religion’s business are expected to be paid in full, according to the company. Approval of its bankruptcy plan is expected in 90 to 120 days.

Richard Summerfield