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PacSun chooses protection of Chapter 11 bankruptcy

Following the spate of clothing retailers to file for bankruptcy, PacSun -- a retailer of surfwear with about 600 stores nationwide, including in Ohio -- is the latest to follow that route. The retailer filed for Chapter 11 bankruptcy, announcing that it was a well-planned move to reorganize and restructure the company. Raised levels of competition and the increased popularity of online shopping were cited as part of the reason for the company's failure to show profits in recent years.

Filing for bankruptcy was in no way a negative move. With the protection of the U.S. Bankruptcy Code, the retailer was able to negotiate a deal with a private-equity firm to swap debt for equity that will provide the company with additional capital of about $20 million when it emerges from bankruptcy. To help fund the reorganization, Wells Fargo has also agreed to a $100 million loan.

The company plans to complete a repayment plan to pay all suppliers' debts in full by Dec. 15. It also aims to emerge from bankruptcy within 120 days. The chief executive of SunPac says bankruptcy offers the company the opportunity to restructure and reduce the occupancy cost of stores that is currently about $140 million per annum through lease rejections or negotiations with landlords. Also, the negotiated equity deal will help to resolve the balance sheet problems.

Regardless of the size of a business, most financial issues can be resolved under the protection of a Chapter 11 bankruptcy. With the guidance of an experienced Ohio bankruptcy attorney, the protection offered by the bankruptcy can be utilized to its fullest. Being proactive in taking action as soon as financial cracks appear may lead to a second chance for any business.

Source: apparelnews.net, "PacSun Files for Chapter 11 Bankruptcy", Deborah Belgum, April 7, 2016

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