Ann Taylor’s debt-laden owner seems to be taking a page from Penney’s path to bankruptcy.
Executive retention bonus payouts appear to be the newest clue that portends a potential bankruptcy filing, with Ascena Retail Group the latest fashion firm that may be headed in that direction.
The distressed retailer and parent to nameplates including Lane Bryant and Ann Taylor Loft said it plans to shell out $5.5 million to three executives as part of a cash retention and incentive award program for its top echelon in management, per a regulatory filing with the Securities and Exchange Commission on Monday. Ascena reviewed its compensation structure while its compensation committee also greenlit the move to reverse salary cutbacks instituted at the onset of the coronavirus pandemic. Like most of its competitors, Ascena had temporarily closed stores, furloughed store associates and reduced base pay for some staff in a move to weather the COVID-19 crisis.
Ascena will pay CEO Gary Muto and interim executive chair Carrie Teffner nearly $1.1 million apiece as a cash retention award, plus the opportunity to earn a future bonus in the same amount, according to the filing. Executive vice president and chief financial officer Dan Lamadrid will receive $603,125 as a cash retention award with another $328,125 potentially coming his way. The company has also accelerated the payments of a portion of the performance-based cash awards earned for 2018 and 2019 for Muto and Lamadrid, with the executives required to repay those bonuses if they leave prematurely.
The filing said the compensation committee noted the “significant uncertainty in the current environment was posing a meaningful distraction for employees” and that replacing existing performance-based arrangements with a combination of retention and performance-based arrangements for executives and staff “was essential to keep employees engaged and focused on the tasks necessary to move the company forward in achieving its goals.”
Meanwhile, the move looks suspiciously similar to how J.C. Penney went about doling out $7.5 million in executive bonuses on May 12 before filing its Chapter 11 petition on May 15.
And other cratering companies are taking a similar tack. Crumbling car-rental giant Hertz Global Holdings Inc. and glass and tableware manufacturer Libby Inc., made similar payout prior to their petitions for bankruptcy court protection.
Bankruptcy rumblings aren’t new for Ascena, first ramping up in August when the specialty apparel firm assured stakeholder it was meeting its financial obligations. But in March, Ascena took issue with credit ratings firm S&P’s characterization of its repurchase of certain debt as “distressed and tantamount to a default.” Ascena fired back, insisting it was taking proactive steps to optimize its balance sheet and that bankruptcy was “not being considered.”
That said, recent speculation centers on Ascena’s reported talks with potential lenders for a possible debtor-in-possession financing facility in the event it elects to file for bankruptcy court protection.
Ascena executives did not respond to a request for comment by press time.
The coronavirus outbreak has backed many an apparel brand into the bankruptcy corner. Should Ascena elect to file, it would join a seemingly endless list of faltering fashion firms, including Penney’s, J. Crew, Neiman Marcus, Stage Stores, John Varvatos, and Aldo. The bankruptcy watch list is growing, too, with Tailored Brands, Stein Mart, J.Jill and New York & Co.‘s parent, RTW Retailwinds under increasing scrutiny amid store closures, spiraling debt and sagging sales.