Tailored Brands Inc., the owner of Men’s Wearhouse and Jos. A. Bank, filed for bankruptcy Sunday.
Tailored entered into a restructuring agreement with more than 75 percent of its senior lenders, according to its voluntary Chapter 11 petition filed in a Southern District of Texas federal bankrupt court. The agreement also provides for a “pre-arranged” financial restructuring plan that is expected to reduce the firm’s funded debt by at least $630 million and allow for sufficient financial flexibility to allow the company to focus on generating profitably growth when it exits bankruptcy proceedings.
Tailored, which also owns Moores Clothing for Men and the K&G Fashion Superstore, will continue its operations while under bankruptcy court protection. It has secured commitments for $500 million in debtor-in-possession financing from existing lenders. The restructuring agreement also contemplates the DIP facility converting to a $400 million revolving credit facility from existing lenders when the company emerges from Chapter 11.
The men’s wear specialist has been in trouble for some time, and the coronavirus pandemic only exacerbated the challenges for a firm whose wares quickly waned in relevance for quarantined consumers. The company, which has reopened about 96 percent of its more than 1,400 stores, warned last Monday that it could file for bankruptcy as soon as the fiscal 2020 third quarter, which began Sunday. Tailored Brands has reopened about 96 percent of its more than 1,400 doors.
“As evidenced by the positive results we saw in January and February, we have made significant progress in refining our assortments, strengthening our omni-channel offering and evolving our marketing channel and creative mix. However, the unprecedented impact of COVID-19 requires us to further adapt and evolve,” Dinesh Lathi, Tailored Brands’ president and CEO, said. “Reaching an agreement with our lenders represents a critical milestone toward our goal of becoming a stronger company that has the financial and operational flexibility to compete and win in the rapidly evolving retail environment.”
The company had skipped a $6.1 million interest payment that was due July 1, and the 30-day grace period had already ended when the men’s apparel retailer filed its petition on Sunday. Two weeks ago, Tailored Brands said it would slash 20 percent of corporate jobs and close as many as 500 stores.
“The decisions announced today build on the actions the company announced on July 21, 2020 to reduce its corporate headcount, rationalize its store fleet, and reduce and realign its store organization and supply chain infrastructure and organization to best serve its go-forward store footprint and e-commerce business. Implementing the financial restructuring will allow Tailored Brands to continue its store optimization process to focus on and invest in the appropriate areas to position the business for the future,” the company said Sunday night.
The company has been trying to lower its debt burden since earlier this year. In January, it sold its Joseph Abboud brand to WHP Global for $115 million. Tailored had about $1.4 billion in debt early this year, down from more than $2 billion. The debt load grew after the company, then formerly known as The Men’s Wearhouse Inc., acquired its competitor Jos. A. Bank Clothiers Inc. for $1.8 billion in 2014. The company subsequently renamed itself Tailored Brands following the completion of the deal. Because of the size of its debt load and resulting financial pressures, credit analysts have been keeping a close eye on the firm.
Despite the financial pressures, the company joined the list of firms near bankruptcy that paid bonuses to top executives just before a filing. Tailored Brands is awarding its top executives nearly $3.3 million in incentives to stay on at the distressed firm. The pre-bankruptcy payouts mean the company isn’t required to obtain court approval for the bonuses.
The company’s petition said its aggregate noncontingent liquidated debts, excluding those owed to insiders or affiliates, total $2.7 million. That amount enabled Tailored Brands to file under Subchapter V of Chapter 11, a new provision under federal bankruptcy law for debtors with aggregate noncontingent liquidated debts less than $7.5 million. Subchapter V provides an easier, less cumbersome process for the bankruptcy case. The company said total debts were $2.8 million, while total assets were nearly $2.5 million.
Seventeen affiliates of Tailored Brands also filed Chapter 11 petitions. The Bank of New York, Houston Tex., is listed as the largest unsecured creditor holding senior notes due 2022, with an unsecured claim of $179.9 million.
Other unsecured creditors in the fashion world among the top 20 who hold claims include: Peerless Clothing, Saint Albans, Vt., trade debt, $8.1 million; WHP Global, Los Angeles, Calif., royalties, $5.8 million; David’s Bridal, Inc., Conshohocken, Penn., royalties, $3.5 million; Productos Textiles, Choloma Cortez, Honduras, trade debt, $2.8 million; Phillips Van Heusen Corp., Atlanta, Ga., trade debt, $2.7 million; Vetements Peerless Clothing, Montreal, Quebec, trade debt, $2.2 million; Laguna Clothing (Mauritius) Ltd., Quatre Bornes, Mauritius, trade debt, $1.6 million; Kenneth Cole Production, Secaucus, N.J., royalties $1.6 million; PT Ungaran Sari Garments, Jakarta, India, trade debt, $1.2 million, and Jiangsu sunshine Co. Ltd./Fabric Wire, Jiangsu Province, China, trade debt, $914,000.
“Despite its dominant position within the market, the company has faced certain struggles, with revenue declining by approximately 5.6 percent over the past two years alone. The company has been impacted by the continuing decline in the brick-and-mortar retail industry generally, recently exacerbated by the impact of the COVID-19 pandemic,” Holly Etlin, chief restructuring officer and managing director at consulting firm AlixPartners, said.
She also said that the impact has continued in other ways, such as through supply chain disruptions, reduced store traffic, and cancelations of large gatherings. “More generally, the business depends heavily on consumer discretionary spending, and, as such, sales are particularly sensitive to economic conditions and consumer confidence, which have been significantly affected by COVID-19,” Etlin added.
In a declaratory statement filed with the bankruptcy court, Etlin said the company employs about 18,000 employees, with about 13,000 full timers and 5,000 part time and seasonal staff. the aggregate annual rent for its current stores are about $416 million. As of Sunday, the petition date, the company operated 1,274 retail apparel and rental stores in all 50 states and the District of Columbia, and 125 retail apparel doors across 10 Canadian provinces. She also noted that the company has secured rental deferments for about 60 percent of its go-forward landlords for the months of April and May, and expects to have negotiations for further rent reductions with landlords for the base rent connected with its go-forward fleet.