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PacSun Files For Bankruptcy, Confirms Restructuring Plans

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PacSun_from flickr

Pacific Sunwear filed for bankruptcy Thursday, settling the rumors and outlining its plans for moving the business forward.

Highlighting all possible positives, PacSun said it will continue business as usual under the Chapter 11 process, “without interruption to customers, vendors, partners and employees.”

The long-ailing retailer entered into a restructuring support agreement with affiliates of Golden Gate Capital, which have already provided the company a $60 million senior secured term loan.

As part of the plan, Golden Gate Capital will convert more than 65 percent of its term loan debt into the equity of the reorganized company and provide at least $20 million more in capital post-Chapter 11 to support PacSun’s long-term growth goals.

Wells Fargo also put $100 million of financing in the pot, which PacSun can draw from to manage swings in cash flow, plus a five-year $100 million revolving line of credit for when the company comes out of Chapter 11.

“The plan negotiated with Golden Gate Capital and approved by our Board of Directors places PacSun in a very promising position as we continue the brand and merchandising transformation that our team has worked relentlessly to achieve,” PacSun president and CEO Gary H. Schoenfeld said.

With its more than $15 billion of capital and “deep familiarity” with the PacSun business, Schoenfeld said Golden Gate Capital is the best equity partner for the company.

“Importantly,” Schoenfeld added, “Great brand partnerships will remain paramount to PacSun’s success and the plan provides for all key suppliers to be paid in full following the effective date of the plan.”

PacSun reported its fourth-quarter and full-year financials in the same statement Thursday, recording a 0.5% drop in net sales to $232.9 million for Q4 and comparable store sales up 0.2%. Net loss in the quarter totaled $10 million compared to the previous year quarter’s $26 million.

For the full fiscal year 2015, net sales were down 3.1% to $800.9 million and comparable store sales were down 2.6%. Net loss for the full year was $8.5 million compared to a $29.4 million loss in 2014.

The losses add to what has been a near nine-year stretch of declines for PacSun, but the company’s CEO continues to maintain a positive outlook, highlighting positive strides in the past several years.

“Due to our team’s hard work and unique brand partnerships, PacSun is the only one of our direct retail competitors to achieve compounded positive same-store sales over the past four years,” he said. “Through this restructuring, however, we plan to solve the two structural issues that operationally we could not fix on our own. First is a very high occupancy cost of approximately $140 million per year, and second is nearly $90 million of long-term debt coming due later this year. The bankruptcy process gives us the ability both to fix our balance sheet by reducing our long-term debt by more than 65 percent, and reduce our annual occupancy costs, either through landlord negotiations or lease rejections, appropriately adjusting the fixed costs of operating our stores to better match the shifting retail landscape.”

Golden Gate Capital managing director Josh Olshansky has high hopes for PacSun’s future and thinks the retailer still has “the most relevant and coveted mix” of California lifestyle brands.

“While there is still work to be done, we are supportive of the steps the company and its management team have taken to position PacSun for success and growth long after emergence,” Olshansky said.

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