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Wet Seal Landlords Battle with Possibly Insolvent Chain

Wet Seal landlords file court motions to ensure they’re paid in full.

The group’s most recent filing objects to the terms of the retailer’s use of its cash collateral, stating that it does not include provisions to cover the $6.08 million owed to property owners.

The landlords say they’re entitled to payment for the bankrupt company’s use of its space through the end of its liquidation sale, which is scheduled to wrap up on February 28th.

The property owners include Starwood Retail Parnters LLC, The Macerich Company, Simon Property Group, Inc., Taubman Landlords and others.

The group argues that by allowing Wet Seal to continue to operate in their properties without paying equals “an involuntary, unsecured, postpetition, interest-free loan to the Debtors in the amount of Stub Rent.” What’s worse, they say, is it’s unreasonable and unequal treatment. “No other party is put in such a position,” they said.

They want all stub rent, or rent due since the bankruptcy filing, to be paid in full.

Of real concern, the group said, is the secured debt for Wet Seal totals approximately $25 million, an amount the landlords believe is beyond the company’s ability to pay. The court document said “there is real potential that these cases are administratively insolvent.” As a result, it’s unlikely the mall operators would ever see their money.

While liquidation sales continue, court filings show sales are lagging behind estimates by 12.5 percent.

Wet seal has filed to reject 124 leases to date.

The teen retailer filed for bankruptcy for the second time earlier this month, just days after announcing store closures. The first bankruptcy filing occurred in January 2015. At the time, the retailer closed 338 stores and laid off 3,695 employees. The company’s website alerts customers that the store is closing and that all goods are 60 to 80 percent off and final sale only. Further, it says all stores will be closed by February 26th.