Claire’s becomes latest retail bankruptcy
Claire’s Stores, known for tween jewelry and ear piercing, has become the latest victim of the retail apocalypse.
The company filed for bankruptcy Monday and said it reached an agreement with creditors including its privateequity backer, Apollo Global Management, to restructure around $1.9 billion in debt. Its plan to survive rests on its reputation for trendy merchandise and a unique service that it says can’t be replicated by shopping online: ear piercing.
“To date, the company estimates that it has pierced over 100,000,000 ears worldwide,” Claire’s Chief Financial Officer Scott Huckins said in court papers as part of the Delaware Chapter 11 filing. The company began piercing ears in 1978.
But even a business model that “remains a compelling proposition over the long term” wasn’t enough to immunize the company from a decline in mall traffic, which fell around 8 percent year-over-year, Huckins said in a court affidavit.
The company also had too much debt, costing it $183 million a year alone in interest payments, he said.
Claire’s is the latest in a string of recent U.S. retail bankruptcies including children’s clothing chain Gymboree, athletic gear seller the Sports Authority and toy seller Toys “R” Us.
CEO Ron Marshall has been trying to revive Claire’s North American operations, under pressure as shoppers shun the malls where the company has many of its 7,500 total locations. The task was hindered by payments on its debt load and efforts to tame its liabilities, including a debt exchange in 2016 and a refinanced credit line last year, didn’t do enough to bolster cash.
Apollo, which took the company private in 2007, exchanged around $183.6 million of debt in the company as part of the 2016 transaction. As of the filing, Apollo owns 98 percent of the company’s equity, and around 28 percent of three types of the company’s debt, totaling around $48 million, according to court filings.
Claire’s agreed to a restructuring plan with a group of creditors led by Elliott Management and Monarch Alternative Capital, according to a statement Monday. The ad hoc group of first lien lenders will provide the company with about $575 million of new capital, including a $250 million first lien term loan.
According to court papers, a debtor-inpossession, or DIP loan to fund operations in bankruptcy will include $75 million revolver and a $60 million term loan with Citibank N.A. as an agent to other lenders.