rue21 Files for Bankruptcy Protection
rue21, Inc., a teen-focused specialty apparel retailer, has filed a voluntary petition for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Western District of Pennsylvania, and has entered into agreements with certain of its lenders to reduce the company's debt and provide additional capital in support of its restructuring.
rue21 expects to continue normal business operations in the ordinary course throughout this process.
The restructuring is an important step forward in rue21's ongoing business transformation into a more focused and highly performing retailer. Last month, the company began the process of closing approximately 400 underperforming stores in its 1,179 store fleet in order to streamline operations, better align the size of its footprint with market realities, and focus on its hundreds of highly performing locations. rue21 may evaluate additional store closings as it continues to manage its real estate lease portfolio.
In conjunction with the restructuring, rue21 has entered into a Restructuring Support Agreement (RSA) with certain of its stakeholders that confirms the support of the Debtors' key constituents for the Debtors' restructuring process and contemplates, among other things, an emergence from chapter 11 proceedings in the fall of 2017 with a significantly deleveraged balance sheet. In particular, lenders holding 96.8% of the Company's secured term loan, bondholders representing 60.2% of the Company's issued and outstanding unsecured notes, and the Company's majority shareholder each executed the Restructuring Support Agreement.
The company has also reached agreements, subject to the approval of the Court, to obtain up to $125 million in ABL debtor-in-possession financing from its existing ABL lenders and up to $50 million in new money term loan debtor-in-possession financing from a subset of its existing term loan lenders. This financing is intended to provide the Company with the liquidity necessary to support its ongoing business operations during the financial restructuring process. The new financing will support day-to-day operations during the reorganization, including:
- Continuing employee wages without interruption;
- Paying vendors in the ordinary course for all authorized goods and services provided on or after the filing date; and
- Honoring all existing customer programs, including gift cards.
Melanie Cox, rue21 CEO, said, "These actions are being undertaken with the goal of strengthening the Company's balance sheet, achieving a more efficient cost structure, and concentrating resources on a tighter retail footprint in order to pave the best path forward for rue21. Even in a challenging environment, we are fortunate that rue21 has highly relevant brands, an enthusiastic and loyal customer base, and hundreds of highly performing stores. The agreement with our lenders represents their confidence in rue21's future success even at a time of significant retail industry change. Looking ahead, I am confident that the outcome of this process will be a stronger and more sustainable rue21 for our customers, vendors and business partners."
The company has made customary filings, including first day motions, with the Court, which, if granted, will help ensure a smooth transition into chapter 11 without disruption. These motions include, among other things, granting authority to pay pre-filing wages, salaries, and benefits, honor customer programs, and pay vendors and suppliers in the ordinary course for all goods and services provided on or after the filing date.