Wednesday, April 5, 2017

Payless files for bankruptcy: will close 400 stores in the US and PR

Payless ShoeSource announced today that it has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Federal Bankruptcy Code to facilitate the financial and operational restructuring of its operations. The company will close 11 stores throughout the island as part of the closing of 400 stores in the US and PR.

The Company’s North American entities, as well as two foreign Hong Kong-based entities involved in logistics (CBL) and supply chain (DAL), are included in the restructuring, which has been filed in the U.S. Bankruptcy Court for the Eastern District of Missouri in St. Louis. Payless is also filing for recognition of the U.S. Chapter 11 proceedings under Part IV of the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice.

Payless will continue to operate its business in the ordinary course in terms of its customers, vendors, partners and employees.

Under the agreed plan with lenders, Payless intends "optimize its store footprint, with the immediate closure of nearly 400 underperforming locations in the U.S. and Puerto Rico." The remaining real estate lease portfolio will undergo a modification of terms or evaluated for the closure of additional locations.

“This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify. We will build a stronger Payless for our customers, vendors and suppliers, associates, business partners and other stakeholders through this process. While we have had to make many tough choices, we appreciate the substantial support we have received from our lenders, who share our belief that we have a unique opportunity to enable Payless — the iconic American footwear retailer with one of the best-recognized global brands — to remain the go-to shoe store for customers in America and around the globe,” said Payless Chief Executive Officer Paul Jones.

The company is promptly seeking immediate relief from the court though the filing of customary first day motions that will allow the Company to smoothly transition its business into Chapter 11.

Additionally, the Company has negotiated agreements with certain of its existing lenders to provide Payless access of up to $385 million of debtor-in-possession financing, which includes access to $305 million of ABL financing and up to $80 million of new term loan financing. In total, the debtor-in-possession financing will provide Payless with access to up to $120 million in incremental liquidity during the Chapter 11 cases. This incremental liquidity will ensure that suppliers and other business partners/vendors will be paid in a timely manner for authorized goods and services provided during the Chapter 11 process, in accordance with customary terms. The $80 million of new term loan financing will also ensure the Company has the exit financing required to emerge from Chapter 11 well positioned for future growth and profitability post-restructuring.

“We are confident that this process will also enable us to leverage Payless’s existing strengths to succeed,” continued Mr. Jones. “These strengths include our ability to produce significant free cash flow and, even last year, flat EBITDA despite unprecedented challenges and in contrast to many retailers; our portfolio of strong proprietary brands, along with unique licensing agreements with premier brands and partners; our best-in-class design and sourcing capabilities that enable the Company to offer customers high quality products at a significant discount to peers; our strong and growing Latin American business, and a lean and scalable franchise model for other markets.”

Consumers will have full access through the Payless corporate website to information about the location of stores at which they can shop if their current store is being closed, as well as information about going-out-of-business sales.


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