Mar 11, 2018
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Claire's on brink of bankruptcy protection filing say sources

Mar 11, 2018

Claire’s Stores Inc is reportedly set to file for bankruptcy protection in the next few weeks as the budget accessories retailer’s debt load becomes too much to handle.

Claire's Stores

It’s a long time since the former high-flying firm reported both rising sales and profits and the last few years have been brutal. The retailer, which has over 3,000 stores in 47 countries, has struggled to generate profits of late, even when sales have been rising. It will now aim to reorganise under the umbrella of bankruptcy protection and put a turnaround plan into operation, Bloomberg reported.

Will that plan include store closures? It’s likely. The company’s shops are largely mall-based and malls have been among the biggest sufferers of the move online.

The Bloomberg report also said that the firm is near a deal to pass control from current owner Apollo Global Management to lenders including Elliott Capital Management and Monarch Alternative Capital, the latter of which specialises in distressed companies.

So what exactly has gone wrong for the firm? Well, as mentioned, that $2bn debt load is the big issue. It’s a huge multiple of the firm’s annual earnings and, as is often the case, is a result of the $3.1bn 2007 leveraged buyout by Apollo, according to Bloomberg.

After Apollo bought Claire’s from the founding family, it expanded it fast with a large number of new stores, and also planned to re-enter the stock market in 2017, although an IPO registration was withdrawn early last year. But Apollo’s ownership came at the worst possible time as the global economic crisis was followed by a surge in e-sales and a decline in the fortunes of malls (and their tenants).

Yet while many companies have large debts on the books but manage to keep going, Claire’s has payment deadlines looming. It has a $60 million interest payment that’s due this week, as well as $1.4 billion of debt that matures next year.

So a chapter 11 filing would allow it to keep its creditors at bay while it comes up with a plan to transform its fortunes. What the plan would be, we don’t yet know, but it’s likely to impact the firm’s stores globally with the problems it’s seeing in its domestic market also affecting its stores in the UK, Europe and elsewhere.

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