Trade Resources Industry Views Pacific Sunwear Files for Bankruptcy

Pacific Sunwear Files for Bankruptcy

Pacific Sunwear of California, Inc. entered into a restructuring support agreement (RSA) with affiliates of Golden Gate Capital, the holder of its secured term loan provider under the company's financing facilities. In conjunction with the RSA, a Plan of Reorganization was approved by the company's Board of Directors, which provides a comprehensive roadmap for the company to continue to execute its strategy and position the company for long-term success as a privately owned entity by Golden Gate Capital.

The parties intend to implement the Plan through a Chapter 11 process. To that end, today PacSun filed voluntary petitions to restructure under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Under the Plan, PacSun will continue to operate its business without interruption to customers, vendors, partners and employees.

Pursuant to the Plan, Golden Gate Capital will be converting more than 65 percent of its term loan debt into the equity of the reorganized company and providing a minimum of $20 million in additional capital to the reorganized company upon its emergence from Chapter 11 to support its long-term growth objectives. The company also announced that it has received a commitment for a flexible draw $100 million in debtor-in-possession (DIP) financing from Wells Fargo Bank, National Association, the company's revolver lender, which will allow the company to draw capital as needed to manage seasonal swings in cash flow. Wells Fargo has also committed to provide a five-year $100 million revolving line of credit effective upon the company's emergence from Chapter 11 and subject to certain conditions.

Gary H. Schoenfeld, president and chief executive officer, stated: "The plan negotiated with Golden Gate Capital and approved by our Board of Directors places PacSun in a very promising position as we continue the brand and merchandising transformation that our team has worked relentlessly to achieve. Golden Gate Capital is a private equity investment firm with over $15 billion of capital under management and a tremendous track record of success. Their deep familiarity with our business, retail expertise, financial strength and industry experience make them an exceptional equity partner for us going forward. Importantly, great brand partnerships will remain paramount to PacSun's success and the Plan provides for all key suppliers to be paid in full following the effective date of the Plan."

Schoenfeld continued, “We have been making significant strides over the past several years to improve performance. Due to our team's hard work and unique brand partnerships, PacSun is the only one of our direct retail competitors to achieve compounded positive same-store-sales over the past four years. Through this restructuring, however, we plan to solve the two structural issues that operationally we could not fix on our own. First is a very high occupancy cost of approximately $140 million per year, and second is nearly $90 million of long-term debt coming due later this year. The bankruptcy process gives us the ability both to fix our balance sheet by reducing our long-term debt by more than 65 percent, and reduce our annual occupancy costs, either through landlord negotiations or lease rejections, appropriately adjusting the fixed costs of operating our stores to better match the shifting retail landscape.”

Josh Olshansky, managing director at Golden Gate Capital, said: “PacSun has successfully transitioned beyond its historical base of action sports brands to what we believe is the most relevant and coveted mix of brands celebrating the California lifestyle. We believe in the future of the company, as reflected by our significant injection of new capital into the business. While there is still work to be done, we are supportive of the steps the company and its management team have taken to position PacSun for success and growth long after emergence. Notably, the company has delivered positive comparable store sales in 13 of the past 16 quarters. We look forward to working closely with Gary and the PacSun team to build a stronger future while continuing to deliver the compelling product assortment and great shopping experience that has long defined PacSun to customers.”

The DIP from Wells Fargo provides for a $100 million revolving credit facility that will allow the company to draw capital as needed to manage seasonal swings in cash flow, subject to certain limitations and conditions. This DIP financing, in conjunction with the company’s cash on hand, is expected to fund the company's operations during the Chapter 11 process, including its obligations to vendors, employees, and other purveyors of goods and services. The DIP is subject to Bankruptcy Court approval and the satisfaction of specified closing conditions.

PacSun intends to operate its business as usual throughout the Chapter 11 restructuring process. All PacSun stores nationwide will remain open on normal schedules and are continuing to operate in the ordinary course. The Chapter 11 filing should have no immediate impact on PacSun’s employees and customers.

The company is seeking customary authority from the Bankruptcy Court to continue to make wage and salary payments, continue various benefits for employees and honor certain customer programs, such as benefits earned under its myGSOM REWARDS loyalty program, gift cards and returns on merchandise purchased prior to the bankruptcy filing. Bankruptcy Court approval for those requests is expected within the next few days. As a result, the company’s salaried and hourly employees should continue to be paid on the normal schedule, and there are expected to be no changes to various employee benefit programs. In addition, customers should not experience any changes in their relationship with PacSun as there are expected to be no changes to the customer loyalty program, warranty programs, return policies or gift card balances.

Guggenheim Securities is acting as investment banker for the company, Klee, Tuchin, Bogdanoff & Stern LLP is the company’s legal counsel in connection with the debt restructuring, and RCS Real Estate Advisors is the company's real estate advisor. FTI Consulting serves as its restructuring advisor. Perella Weinberg Partners is acting as financial advisor for Golden Gate Capital, and Kirkland & Ellis is Golden Gate Capital’s legal counsel. Choate Hall & Stewart LLP is Wells Fargo's legal counsel.

Information regarding the company’s Chapter 11 filings, including access to court documents, can be found at pacsun.com, http://casesprimeclerk.com/PSUN (the court-appointed claims agent site), or www.deb.uscourts.gov, the official Bankruptcy Court website.

Fourth Quarter Financial Information

The company also announced today that net sales for the fourth quarter of fiscal 2015 ended January 30, 2016, were $232.9 million versus net sales of $231.6 million for the fourth quarter of fiscal 2014 ended January 31, 2015. Comparable store sales for the fourth quarter of fiscal 2015 were slightly positive at 0.2 percent. The company ended the fourth quarter of fiscal 2015 with 601 stores versus 605 stores a year ago.

On a GAAP basis, the company reported a net loss of $10.0 million, or $(0.14) per diluted share, for the fourth quarter of fiscal 2015, compared to a net loss of $26.0 million, or $(0.38) per diluted share, for the fourth quarter of fiscal 2015. The net loss for the company's fourth quarter of fiscal 2015 included a non-cash gain of $0.2 million, or $0.00 per diluted share, compared to a non-cash loss of $14.3 million, or $(0.21) per diluted share, for the fourth quarter of fiscal 2014, related to the derivative liability that resulted from the issuance of Convertible Series B Preferred Stock (the “Series B Preferred”) in connection with the term loan financing the company completed in December 2011 with an affiliate of Golden Gate Capital.

On a non-GAAP basis, excluding the non-cash loss on the derivative liability, other one-time charges, and assuming a tax benefit of $2.5 million, the company would have incurred a net loss for the fourth quarter of fiscal 2015 of $6.4 million, or $(0.09) per diluted share, as compared to net loss of $7.1 million, or $(0.10) per diluted share, for the same period a year ago.

"Our slightly positive comp store sales performance was at the better end of what many retailers experienced over the Holiday season, which continues to validate our core strategies as we re-establish the new PacSun," said Mr. Schoenfeld.

Full Year Financial Information

Net sales for fiscal 2015 were $800.9 million versus net sales of $826.8 million for fiscal 2014. Comparable store sales decreased 2.6 percent during fiscal 2015.

On a GAAP basis, the company reported a net loss of $8.5 million, or $(0.12) per diluted share, for the 2015 fiscal year, compared to a net loss of $29.4 million, or $(0.42) per diluted share for the 2014 fiscal year. The net loss for the 2015 fiscal year included a non-cash gain of $27.7 million, or $0.40 per diluted share, compared to a non-cash gain of $2.3 million, or $0.03 per diluted share for the 2014 fiscal year, related to the derivative liability.

On a non-GAAP basis, excluding the non-cash gain on derivative liability, other one-time charges, and assuming a tax benefit of approximately $11.0 million, the company would have incurred a net loss for the 2015 fiscal year of $22.6 million, or $(0.32) per diluted share, as compared to a net loss of $18.5 million, or $(0.27) per diluted share, for the 2014 fiscal year.

Derivative Liability

In fiscal 2011, as a result of the issuance of the Series B Preferred in connection with the company's $60 million senior secured term loan financing with an affiliate of Golden Gate Capital, the company recorded a derivative liability equal to approximately $15 million, which represented the fair value of the Series B Preferred upon issuance. In accordance with applicable U.S. GAAP, the company has marked this derivative liability to fair value through earnings and will continue to do so on a quarterly basis until the shares of Series B Preferred are either converted into shares of the company's common stock or until the conversion rights expire (December 2021).

As of April 7, 2016, the company operates 593 stores in all 50 states and Puerto Rico. PacSun's website address is www.pacsun.com.

Source: http://www.sportsonesource.com/news/spor/spor_article.asp?section=9&Prod=1&id=60428
Contribute Copyright Policy