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Gymboree to Restructure $1.1B in Debt in Ch. 11

Children's clothing retailer Gymboree Corp. announced Sunday it is looking to reduce its swelling debt by approximately $1 billion under a prenegotiated plan to restructure through Chapter 11 bankruptcy, saying it has fallen victim to a shift in consumer habits that has been roiling the retail industry.

The popular toddlers' apparel company filed for bankruptcy protection in Virginia, intent on restructuring about $1.1 billion in total funded debt obligations and exiting Chapter 11 by late September. Along with announcing its financial restructuring, the retailer said Chief Financial Officer Andrew North is stepping down "for personal reasons."

The company plans to recapitalize using a cash infusion of $35 million in debtor-in-possession financing from its term loan lenders, gaining access of up to $273.5 million from asset-backed loan facilities, rolling up prepetition borrowing debt into its DIP financing, and raising $80 million in new equity through a stock offering. It said 66 percent of its $788 million term loan lenders have agreed to support the restructuring.

Following a pattern of other distressed retailers, Gymboree said it plans to close down more than 375 of its roughly 1,300 stores in light of a marked downturn in foot traffic as consumers shift to doing their shopping online, rather than in malls or shopping centers. Gymboree's substantial brick-and-mortar presence is not sustainable in light of these changing trends, it said.

"We expect to move through this process quickly and emerge as a stronger organization that is better positioned in today's evolving retail landscape, with the right size store footprint and greater financial flexibility to invest in Gymboree's long-term growth," CEO Daniel Griesemer said in a statement Sunday.

The restructuring maneuvers allow the retailer to get ahead of looming debt maturities beginning in December while keeping its operations up and running.

As part of its first-day motions, Gymboree asked the court to authorize its proposed DIP financing and to permit continued payments of employee wages and critical vendor invoices.

Gymboree started in San Francisco in 1976 as a program to promote child growth and learning through playtime with parents, according to court papers. It began selling children's clothing in 1986 to complement its existing business, ultimately growing its retail operations to include three brands selling out of close to 1,300 stores over the next three decades.

The company attributes its current financial woes to its dependency on store traffic and "underdeveloped online presence and wholesale platform." It has seen declining sales amid a boom in e-commerce and increased competition from competitors like Children's Place and The Gap, who are not as leveraged, Chief Restructuring Officer James A. Mesterharm said in court filings.

With its problems diagnosed, Gymboree says it plans to focus on selling large quantities of merchandise to retailers like T.J. Maxx and Costco, improving its online and mobile shopping platform, and shifting its product sourcing to lower-cost countries.

The debtors are represented by James H.M. Sprayregen, Anup Sathy, Steven N. Serajeddini, Joshua A. Sussberg and Matthew C. Fagen of Kirkland & Ellis LLP and by Michael A. Condyles, Peter J. Barrett and Jeremy S. Williams of Kutak Rock LLP.

The case is In re: The Gymboree Corp., case number 3:17-bk-32986, in the U.S. Bankruptcy Court for the Eastern District of Virginia.