Pacific Sunwear files for bankruptcy

Apr 07, 2016, 11:17 AM EDT
A PacSun store.
(Source: Random Retail/flickr)

Pacific Sunwear filed for bankruptcy protection, with liabilities some five times larger than its assets.

Reuters reports:

Struggling teen apparel retailer Pacific Sunwear of California Inc (PSUN.O) filed for Chapter 11 bankruptcy protection on Thursday, succumbing to mounting losses and intense competition in the industry. The company's shares fell as much 42 percent to a record low of 5 cents in early morning trading. Private investment firm Golden Gate, which plans to take PacSun private after it emerges from bankruptcy, will convert more than 65 percent of its debt into equity and provide a minimum of $20 million in additional capital, the company said on Thursday. Golden Gate had lent PacSun about $60 million in 2011. The Anaheim, California-based retailer listed assets in the range of $50 million to $100 million, and liabilities of between $100 million and $500 million, according to a court filing.

Bloomberg notes:

Chief Executive Officer Gary H. Schoenfeld blamed past managers for a series of mistakes -- including two failed expansion plans -- that made it harder for the company to keep up with increased competition and the changing tastes in youth-oriented fashions. “The company’s expansion to nearly 1,000 stores created too large a store footprint with numerous underperforming stores and above-market occupancy costs,” Schoenfeld said in court papers Thursday. In the late 1990s, PacSun began opening stores based on urban fashions in addition to its surfwear shops. The experiment failed and by 2008 the company had closed 225 stores. It now has fewer than 600.

The Wall Street Journal writes:

The company’s battered stock was worth a dime a share at Wednesday’s close, down from its 52-week high of $2.73 and its lifetime high of $29.05. Shares, which have fallen 56% in the past three months and 96% from a year ago, skidded 16% to eight cents in premarket trading. In a debt-for-equity restructuring agreement with Golden Gate Capital, the lender agreed to convert 65% of the company’s debt into equity of the reorganized company. Golden Gate will also provide at least $20 million to the company once it emerges from chapter 11. Pacific Sunwear also said it received a commitment of $100 million in debtor-in-possession financing from Wells Fargo Bank, which the company plans to draw from as needed to manage seasonal swings in cash flow and fund its obligations during the bankruptcy process. Wells Fargo also committed to provider a five-year, $100 million revolving line of credit after the company emerges from bankruptcy. The company said that while it sought chapter 11 protection it would operate its business without interruption to customers, vendors, employees and other partners throughout the process.