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What in the World is Going on With J.Jill?

Struggling women’s specialty chain J.Jill has negotiated another extension of two forbearance agreements with lenders, this one by another five days through Sept. 1.

The forbearance agreements with the retailer’s asset-based and term loan lenders were inked on June 15, and have since been extended five times. The terms essentially represent the lenders’ promise not to exercise any rights and remedies they have against the retailer, giving J.Jill a bit of breathing room to explore options.

After five extensions, at least one retail expert, a former analyst who requested anonymity, believes that a “deal of some sort is in the works.” This source said there has to be some discussion that seems promising enough to give lenders comfort in agreeing to one extension after another.

That doesn’t mean J.Jill won’t end up in bankruptcy court.

The ailing chain could be hammering out a pre-packaged deal with lenders, and sometimes there are delays in securing what is called debtor-in-possession financing to fund a bankruptcy case. Credit analysts have placed J.Jill on bankruptcy watch because of its bloated debt load. And an agreement in hand before a filing with the support of lenders helps control the course of the bankruptcy case.

But J.Jill could also be talking to a potential buyer, one that may or may not require a bankruptcy filing. It plans to close 11 stores and end the year with 275 doors. A buyer might want to further narrow the store base, and a filing could make that easier to do because it would limit landlords’ negotiating power.

The company recently paid chief financial officer Mark Webb a cash retention bonus, which are often awarded to retain key talent. But given the recent trend of companies such as  J.C. Penney and at Ascena paying similar incentives just prior to a Chapter 11 filing, the bonus only adds fuel to the bankruptcy speculation fire.

The retailer on July 28 reported a first-quarter net loss of $70.3 million, or $1.38 a diluted share, on a 48.4 percent drop in net sales to $91.0 million.

“As we look ahead, we are continuing to monitor the evolving macro backdrop while working to strengthen our financial position,” James S. Scully, interim CEO, said at the time.

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