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Forever 21 Plans To Shutter More Than 200 Stores In Ch. 11

Attorneys for fast-fashion retailer Forever 21 told a Delaware bankruptcy judge on Tuesday that it plans to close more than 200 stores worldwide and negotiate rent concessions with landlords as part of its Chapter 11 restructuring.
During a first-day hearing in Wilmington, debtor attorney Joshua A. Sussberg of Kirkland & Ellis LLP said Forever 21’s 800-store global footprint had become too unwieldy for the company to sustain and that it was necessary to close 178 American stores, along with all of its stores in Canada and Europe and most of its stores in Asia.
Forever 21 will refocus its operations in the United States and Latin America and emerge from bankruptcy with about 592 stores still open, Sussberg said.
“This is the footprint the company believes will allow it to get back to basics,” he said.
The company will also work to negotiate concessions on rent obligations with the landlords of its remaining stores while preserving long-standing relationships with its suppliers through vendor support agreements, Sussberg said. Both constituencies — the landlords and vendors — are key to the success of the debtor’s restructuring, he told the court.
The debtor is carrying $350 million in accounts payable to its suppliers, which made the company’s rise to retail success possible in the 1990s and 2000s by enabling Forever 21 to stock its shelves with the latest fashion trends quickly enough to beat competitors to market, Sussberg said. Vendor support agreements have been signed by 136 suppliers representing $244 million of those accounts payable, he told the court, which will enable the debtor to have merchandise in its stores in the run-up to the holiday shopping season, which begins in less than eight weeks.
“They are the lifeblood of this company,” Sussberg said of the suppliers. “Keeping those vendors intact, especially at a time when we stand here … eight weeks away from Black Friday, [the agreements are] a very, very important feature.”
Likewise, reaching deals with landlords is key to moving forward on a sustainable basis, Sussberg said. With 12.2 million square feet of leased retail space and some landlords holding more than 100 store leases, Forever 21 is “almost too big to fail” for the landlords, Sussberg told the court.
To fund all of these endeavors, Forever 21 has secured $350 million in post-petition financing from its prepetition lenders. A $275 million asset-based loan is being provided by a consortium of banks led by JPMorgan Chase and will be used to pay down existing prepetition ABL debt. A $75 million new money term loan will also help pay down a portion of the prepetition ABL debt and provide needed cash for the debtor to make payroll and vendors obligations.
The debtor received interim permission to access $60 million of the new money in the term loan Tuesday.
The DIP financing agreement includes several deadlines for the debtor to meet, including seeking permission to begin store closings by Nov. 8, securing $50 million in rent concessions by Nov. 28 and confirming a Chapter 11 plan by the end of February 2020.
“It is an aggressive timetable but it is a timetable we believe we can meet, a timetable we must meet and a timetable that is in everybody’s best interest,” Sussberg said.
U.S. Bankruptcy Judge Mary F. Walrath, sitting in for assigned U.S. Bankruptcy Judge Kevin Gross, approved a typical slate of first-day motions Tuesday in addition to granting interim approval for the debtor-in-possession borrowing. Among the motions approved by the court were motions seeking permission to pay employee wages and benefits up to $25 million, permission to pay $19 million in prepetition tax obligations and permission to continue its customer programs.
The debtor filed for Chapter 11 protection late Sunday, listing $195 million in secured ABL debt and $20 million in term loan debt, along with $13.2 million in notes outstanding.
Founded in 1984 by husband-and-wife team Jin Sook and Do Won Chang shortly after they immigrated to the United States from South Korea, a single Los Angeles store had exploded into a global retail giant with 800 stores in 43 different countries by the 2010s. At its peak in 2014, the company took in $4.1 billion in sales, but its fortunes began to reverse in the last five years and its sales figures dropped by about $1 billion, according to a first-day declaration from Chief Restructuring Officer Jonathan Goulding.
International expansion saddled the company with debt and high operating costs while its merchandise wasn’t appealing to global customers, the declaration said.
Forever 21 is represented by Laura Davis Jones, James E. O’Neill and Timothy P. Cairns of Pachulski Stang Ziehl & Jones LLP and Joshua A. Sussberg, Aparna Yenamandra and Anup Sathy of Kirkland & Ellis LLP.
The case is In re: Forever 21 Inc. et al., case number 1:19-bk-12122, in the U.S. Bankruptcy Court for the District of Delaware.