Trend-focused teen retailer Rue 21 filed for reorganization under Chapter 11 on Monday.
The chain is carrying $1 billion in debt from a $1.1 billion leveraged buyout by private equity firm Apax Partners in 2013. Last month, the company announced that it would close 400 of its 1,194 stores in an attempt to improve its liquidity. Since then, sources close to the matter warned that the retailer was likely to file for bankruptcy protection within a matter of weeks.
“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,” Rue 21 CEO Melanie Cox said in a statement. “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 retailer has entered into a restructuring support agreement with key stakeholders to allow it to emerge from the proceedings in the fall in better financial standing.
“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,” Cox added.
Rue 21 has also obtained up to $125 million in debtor-in-possession financing from existing lenders and up to $50 million in new money term loan debtor-in-possession financing from some of its existing term loan lenders.
Rue 21 is the latest in a string of retail bankruptcies in the last 12 months that has hit mall-based, teen-focused stores hard. Aeropostale, American Apparel and Wet Seal are among the chains that have filed for bankruptcy, citing shifts in consumer shopping habits as a main cause.