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BCBG Max Azria Hits Ch. 11 Amid Retail Store Closings

Women's apparel company BCBG Max Azria Group Inc. filed for bankruptcy protection in New York on Tuesday, just weeks after announcing the closure of 120 retail stores, aiming to strengthen its online business and emerge from Chapter 11 in six months after restructuring more than $500 million worth of debt.

Like other clothing retailers, BCBG has fallen on hard economic times due to "adverse macro-trends," including a general shift away from brick-and-mortar stores, a shift in consumer tastes, expensive leases, under-penetration of its wholesale and licensing segments, and expensive investments in overseas operations, the company's chief restructuring officer said in a court filing Wednesday.

The fashion house, founded by Max Azria in 1989, has entered bankruptcy saddled with somewhere between $500 million and $1 billion in liabilities, and assets valued between $100 million and $500 million. Acknowledging that the affiliated debtors are due for a reorganization, acting interim CEO Marty Staff said in a statement Tuesday that the company is taking steps "to address the shift in customer shopping patterns and the growth of online shopping" that will allow it to focus on partner relationships, e-commerce, selected retail locations, and wholesale and licensing arrangements.

"The Chapter 11 filing will further aid the implementation of these steps and overall strategy while we explore opportunities to recapitalize the company and profitably expand our international footprint," he said.

According to court documents and a Tuesday news release, BCBG has obtained a commitment of $45 million in new financing to ensure normal operations during the Chapter 11 process.

Chief Restructuring Officer Holly Felder Etlin said that the debtors are in talks with their junior secured lenders — currently owed about $290 million under a term loan facility — to finalize the terms of a reorganization plan that contemplates either a sale of BCBG's assets to a third party or a debt-for-equity conversion.

The commitment for debtor-in-possession financing contemplates a timeline that would see the debtors emerge from Chapter 11 by the end of July, Etlin said.

Over the past three decades, the high-end purveyor of womenswear grew to more than 550 stores across the U.S., Canada, Europe and Japan. Though the company has enjoyed years of success, it has seen a downturn in net sales over the past few years, declining over 20 percent since 2014, from $785 million to approximately $615 million in the most recent fiscal year, Etlin said.

BCBG attributes the downturn in sales to a confluence of factors, including "a cost structure misaligned with market realities, a lagging online presence, an overextended physical store footprint, an unexploited intellectual property portfolio, and an under-developed wholesaling division," according to Etlin.

In an effort to stave off defaults, BCBG engaged in an out-of-court restructuring with key stakeholders in 2015, when it exchanged more than $550 million in then-existing term loans for $250 million in junior secured term loans and equity units. It also made additional borrowing arrangements last summer for another $50 million in an agreement that required Azria to retire as CEO and as a member of the board of managers.

To facilitate its turnaround effort, the company disclosed earlier this month the closure of 120 retail stores. BCBG is also taking steps to close its freestanding stores in Canada, as well as consolidate its operations in Europe and Japan, according to Etlin.

"The debtors' go-forward business plan is focused on a reduced domestic physical footprint, accompanied by increased intellectual property licensing, wholesaling and online retail activities," she said. "International activities will be focused on certain distribution licenses and wholesale sales."

The debtors are represented by Joshua A. Sussberg, Christopher J. Marcus, James H.M. Sprayregen and Benjamin M. Rhode of Kirkland & Ellis LLP.

The case is In re: BCBG Max Azria Global Holdings LLC et al., case number 1:17-bk-10466, in the U.S. Bankruptcy Court for the Southern District of New York.