True Religion Apparel, Inc. announced on Wednesday that it has filed for bankruptcy protection. The Manhattan Beach-based denim maker is just the latest in a string of California garment makers to buckle under consumer migration to online shopping.
The jeans maker filed for protection from creditors under Chapter 11 in the U.S. bankruptcy court in the District of Delaware (case 17-11460). The company listed assets in the range of $100.0 million and liabilities of $535.0 million.
True Religion struck a deal with lenders, TowerBrook Capital Partners, a New York private equity firm that owns the denim company, which will see the company’s debt slashed by more than 75%, or over $350.0 million.
TowerBrook also owns apparel retailers J.Jill and Kaporal Jeans and the NHL’s St. Louis Blues, in which it will retain a minority stake.
John Ermatinger, True Religion’s chief executive officer, said the restructuring deal will allow the company to keep its doors open while it grows its online footprint. In addition to having 75% of its debt erased from the books, bankruptcy will also allow the company to close or consolidate underperforming stores and renegotiate leases.
True Religion has secured a $60.0-million bankruptcy loan from Citizens Financial Group Inc (NYSE:CFG) that will allow the company to continue to pay its 1,900 employees and vendors. The reorganization of True Religion is expected to take 90 to 120 days.
“After a careful review, we are taking an important step to reduce our debt, reinvigorate True Religion’s iconic brand and position the company for future growth and success,” Ermatinger said.
Under the terms of a restructuring agreement, lenders, including funds managed by Goldman Sachs Group Inc (NYSE:GS), Waddell & Reed Financial, Inc. (NYSE:WDR), and Farmstead Capital Management LLC will swap $386.0 million in loans for about 90% of new equity in a reorganized True Religion.
Junior creditors and existing shareholders are in line for small distributions of equity in the reorganized company, provided they vote to approve the restructuring plan.
True Religion was founded in 2002 and sells its designer jeans and other apparel at 140 True Religion and Last Stich retail stores. Despite being one of the country’s go-to brands for denim, True Religion’s revenues have been sliding for years, as customers continued to shun shopping malls and traditional brick-and-mortar stores in favor of online shopping and lower-priced apparel retailers.
True Religion tried to stop the bleeding over the last number of years, closing 30 stores and laying off staff. The company also funneled resources into its online channel. It hasn’t been enough, however.
For the fiscal year ended January 28, 2017, the company reported total assets of $243.3 million against total liabilities of $534.7 million. For the 12 months ended January 28, 2017, True Religion generated revenue of $365.9 million and an operating loss of $78.5 million.
But the company hopes it’s turned a corner. In the first five months of 2017, True Religion posted adjusted earnings before interest, taxes, depreciation, and amortization of $7.1 million, up 95% since last year.
“This improved performance will allow us to enter into the next phase of our recapitalization process with confidence as we continue to execute against our strategic plan and drive the business forward,” Ermatinger said.
Like True Religion, other garment brands in California have been shuttering doors at a record pace. Other California brands that have filed for bankruptcy in recent years include American Apparel Inc, Quicksilver, Inc., Wet Seal, and Nasty Gal Inc. Over the last number of months, Papaya Clothing and Bachrach have sought Chapter 11 bankruptcy protection.
“Declaration Of Dalibor Snyder, Chief Financial Officer, In Support Of First Day Pleadings,” United States Bankruptcy Court for the District of Delaware, July 5, 2017.
“Designer jeans maker True Religion files for bankruptcy,” Financial Times, July 5, 2017.