Claire's owner planning to divest and taking company bankrupt

U.S.-based accessories chain Claire's Stores is reportedly filing for bankruptcy later this month. Same sources, who have required to remain anonymous given the private nature of the deal, also pointed out that Claire’s owner, Apollo Global Management, would pass the company’s lease to lenders including Elliott Capital Management and Monarch Alternative Capital. Venor Capital Management and Diameter Capital Partners are also thought to be involved.

Corporate debt at Claire’s stands at 2 billion dollars. The current debt load is more than 10 times a key measure of its annual earnings, the result of its 2007 leveraged buyout by Apollo, reports the ‘Daily Herald’.

More than 1.4 billion dollars of its debt matures next year, and more immediate pressure comes from a 60 million dollars interest payment that's due March, 13.

Apollo paid 3.1 billion dollars to acquire Claire's from founder Rowland Schaefer’s family, and began expanding rapidly. However, the accessories chain struggled to remain profitable after the Apollo buyout, driving Claire's to withdraw its initial public offering registration in early 2017. The latter stalled rapidly as the debt remained mounting.

Prices for some of Claire's debt have been at deeply distressed levels, with quotes earlier this month for its 2019 issue hovering under 70 cents on the dollar, reported Bloomberg.

“If you look at many of these retailers that have struggled, it’s not because they’re not operating profitably,” said Greg Portell, lead partner for the retail practice at consulting firm A.T. Kearney. “It’s because they can’t service their debt.”

Claire’s to shy away from malls to recover financial stability

A Chapter 11 bankruptcy filing would provide the retailer with a lifeline so it can continue to operate and buy some time to finish its turnaround strategy.

Together with the burdening debt, Claire’s is working towards cutting its reliance on shopping malls. “You can have the right product, but if no one is coming to see the store, how are you going to sell it?” said Poonam Goyal, a retail analyst at Bloomberg Intelligence. “You want to be where the traffic is, and the mall is less and less where people go.”

Claire's has circa 1,600 stores in North America and like other chains with a heavy mall presence, Claire's has had to contend with declining customer traffic and online competition. It added about 350 stores between 2010 and 2013, with more than 2,700 globally by the time it made public its plans to go public.

Photo:Claire’s Web