Payless Inc. is in talks with its lenders over a restructuring plan that includes closing about 1,000 stores as it wrestles with an unsustainable debt load, according to people with knowledge of the matter.
The discount shoe retailer may consider filing for bankruptcy if it’s unable to reach a deal with the creditors, said the people, who asked not to be identified because the information isn’t public. A decision on whether to restructure in or out of court may be reached as soon as this month, they said.
The chain has hired Guggenheim Partners to help in the effort, the people said. Guggenheim declined to comment, as well as Payless.
Payless is the latest retailer to find its back against the wall because of declining mall traffic as more and more customers shift spending to experience from shoes and apparel. The retailer hired law firm Kirkland & Ellis LLP to look at options for its $600 million debt load, people with knowledge of the matter said earlier.
Traditional chains are struggling because of the quickening shift to online shopping offered by competitors led by Amazon.com Inc. Retailers such as J. Crew Group Inc., Claire’s Stores Inc., Gymboree Corp., Rue21 Inc., and True Religion Apparel Inc. are identified as the most troubled companies on S&P Global’s list of retailers on negative outlook.
Payless was bought by private equity firms Golden Gate Capital and Blum Capital Partners in 2012 as part of a split of publicly traded Collective Brands Inc. The company, founded in 1956 in Topeka, Kansas, has more than 4,400 stores in 30 countries and employs more than 25,000 people, according to its website.
The company’s biggest debt piece is a $520 million term loan due in 2021, according to data compiled by Bloomberg. The loan, which was last quoted above par July 2014, declined another 2 cents to trade around 51 cents on the dollar.
Moody’s Investors Service and S&P both cut the ratings of Payless’s loans in February, pointing to revenue declines and mounting leverage. Moody’s in its report highlighted the company’s high leverage and limited access to liquidity.
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