Most troubled retailers saw the holiday season gift them with lumps of financial coal. Unseasonably warm weather cut into the sale of outerwear as well as other seasonal items and that, combined with sluggish consumer demand, resulted in heavy discounting to clear out excess inventory.

"The holidays were disappointing and traditional retailers had a difficult time," said Peter Schaeffer, a principal at GlassRatner Advisory & Capital Group LLC, referring to legacy brick and mortar stores. Schaeffer added that the results for off-price, outlets and the internet were decent, but ate into the sales of traditional retailers.

He said that when you couple the warmest winter in a very long time and disappointing holiday sales, "it makes life very difficult."

Schaeffer said he is cautious about the outlook for retailers this year, but noted that those offering something special in assortment, service or price should fare much better.

Already this year, a number of retailers have opted for bankruptcy protection, most notably Sports Authority Holdings. The portfolio company of private equity firm Leonard Green & Partners filed for Chapter 11 on March 2 with plans to pursue a dual-track sale and restructuring process. The company is in the midst of closing up to 200 under-performing stores and two distribution centers.

Other retailers to file since January 1 include apparel wholesaler

Hot Shot HK LLC

(in Manhattan on Feb. 26), high-end children's clothing stores operator

Peek, Aren't You Curious

 (in San Francisco on Feb. 5), leather appeal purveyor

Daniel Leather

 (in Ontario, Canada on Feb. 4), fabric manufacturer and distributor

Hancock Fabrics

(in Wilmington, Del. on Feb. 2) and women's apparel retailer

Joyce Leslie

(in White Plains, N.Y. on Jan. 9).

Struggling retailer Charlotte Russe purchased substantially all of the assets of Peek, Aren't You Curious out of bankruptcy, including some of its retail stores, inventory, e-commerce assets and intellectual property, in a sale that closed on March 24.

Not every traditional retailer suffered. Among those performing much better than their counterparts were two in particular:

Toys 'R' Us


J.C. Penney Co


(JCP) - Get Report


They are repairing their balance sheets, with Toys 'R' Us planning to refinance debt and J.C. Penney looking to sell lucrative real estate to eliminate some of its liabilities.

But other retailers are in more desperate shape. The most endangered are the usual suspects, including Pacific Sunwear of California (PSUN) and Aeropostale (ARO) , both of which have hired advisers. In Aeropostale's case, that could be for either a sale or a restructuring, while Pacific Sunwear is thought by industry sources to be a likely candidate for bankruptcy.

Claire's Stores, Sears Holdings (SHLD) , J. Crew Group and Gymboree all continue to struggle as well.

While Hhgregg (HGG) and Bebe Stores (BEBE) have cash and no debt, their trajectories increasingly look similar to that of Wet Seal. The last had cash of about $46 million and no debt as of Feb. 1, 2014, but still ended up filing for bankruptcy about a year later as its financial performance continued to quickly unravel.

And there are new additions to the list that also appear deeply troubled, including Bon-Ton Stores (BONT) , Charlotte Russe, Nine West Holdings, True Religion Apparel, 99 Cents Only Stores and Payless.

Aeropostale, J. Crew, Toys 'R' Us, and Nine West declined to comment, while all of the other retailers mentioned did not respond to requests for comment.

And for those that do have to file for bankruptcy, the prospects of reorganizing are not good.

"Now you have a circumstance where, for various reasons having to do with bankruptcy code amendments, it's almost impossible for a retailer to reorganize," said Lawrence Gottlieb, senior counsel at Cooley LLP. Amendments in 2005 to the U.S. bankruptcy code tightened the timeline for restructuring in a way that favors landlords over their tenants, making it difficult for retailers to reorganize and emerge as going concerns. Moreover, banks have balked at lending to Chapter 11 debtors in the retail industry recently, Gottlieb said.

"A company that is in trouble isn't going into bankruptcy to reorganize anymore. When they go into bankruptcy, they know the ballgame is over," he said.

"It's really hard to get retail financed right now, the lending community, including banks and non bank finance companies are skittish and nervous," said Gregory L. Segall, the chairman and CEO of Versa Capital Management LLC, a Philadelphia-based private equity investment firm that focus on the middle market and has invested in many retailers.

Segall added that retailers used to drive them crazy in the best of times because they lose money through the year and make it up in the fall, but that is frightening for banks in this day in age because of heavy scrutiny and regulations. "It's more challenging to get conventional financing," Segall said.

"I expect to see many more bankruptcy filings this year in the retail sector," Segall concluded.

With liquidation as the status quo in retail restructurings, even distressed investors are looking to avoid the risks and put their money elsewhere.

"I think most distressed guys are totally sour on retail," said David Tawil, president of distress-focused hedge fund Maglan Capital.

If there's any consolation for the industry, it lies in the fact that things could be worse, said James Gellert, chairman and CEO of ratings service Rapid Ratings International.

He noted, for example, that companies in the financial services, oil, chemicals and commodities sectors as a whole are performing even more poorly. In fact, Gellert noted, retail is performing much better than the overall sample of companies included in Rapid Ratings' U.S. coverage.

The research firm, which covers many of the companies mentioned in this article, provided ratings to The Deal based on retailers' financial health.

Here's a closer look at The Deal's list of the most troubled retailers, which was released in November.


Pacific Sunwear 

The surf-themed apparel banner has seen its stock sink to new lows, closing at 12 cents per share on March 28, prompting numerous industry sources to identify the company as the retailer on the list most likely to file for bankruptcy.

Pacific Sunwear reportedly hired Guggenheim Securities LLC and FTI Consulting Inc. as its financial advisers in early March and, even more worrying, ended up not reporting financial results on March 23 for its most recent quarter, as it was expected to do.

Neither Guggenheim nor FTI returned calls seeking comment.

The retailer's troubles don't just reflect the fact that it is a mall-based purveyor of clothing to teens, a category seeing little or no growth. Pacific Sunwear also faces increased competition. For starters, there is the revival attempt of the brand Hang Ten, as The Deal has previously reported. Add to that the arrival of online retailers such as, not to mention the likes of sports apparel behemoths Nike Inc. (NKE) and Under Armour Inc. (UA) introducing their own surf offerings, and this particular retailing wave looks very crowded.

Pacific Sunwear had cash and cash equivalents of about $11 million and debt of $132 million as of Oct. 31, based on the most recent numbers released. Adjusted Ebitda for the quarter ended on Jan. 31 is estimated to be close to $4 million, according to data provided by Bloomberg.


The New York-based teenage apparel retailer announcement on March 17 that it hired Stifel Financial to advise it on a full range of strategic and financial alternatives, including a sale or a restructuring, reflecting Aéropostale's on-going struggles and potential cash crunch.

Howard Davidowitz, chairman of national retail consulting and investment banking firm Davidowitz & Associates Inc., previously told The Deal that he thinks Aéropostale is headed towards a bankruptcy filing and won't be able to find a buyer, because the entire apparel segment is doing terribly.

He said Aéropostale has been going downhill for years and has been hurt by locations in bad malls, high unemployment rates among teens, and by competition, particularly from e-commerce.

In addition, the retailer recently disclosed that it is currently engaged in a dispute with its vendor MGF Sourcing US LLC, which is an affiliate of private equity firm Sycamore Partners LLC. Aéropostale said that it believes the vendor is in violation of a sourcing agreement and warned that it could cause a cash crunch, although MGF disputes the claim.

Aéropostale reported a nearly $22 million net loss for the fourth quarter ending Jan. 30. The retailer also said its net sales declined by 16.1%, to close to $500 million, and that its same stores sales fell 6.7%.

As of Jan. 30, the company had about $65 million in cash and cash equivalents and approximately $140 million in debt. Adjusted Ebitda is projected to be nearly negative $50 million for the fiscal year ending on Jan. 31, 2017.

Claire's Stores 

Moody's Investors Service deems Claire's one of the more endangered retailers it follows, with a debt to Ebitda ratio of 8.2 times, negative free cash flow and declining Ebitda since 2014.

That financial performance by the Hoffman Estates, Ill.-based company underscores just how weak the teen demographic is for retailers dependent on impulse purchases from mall traffic.

Claire's, which is backed by private equity firm Apollo Global Management LLC, features accessories, which are particularly dependent on such purchases.

According to a March 17 report, Moody's expects Claire's earnings decline to continue, making its capital structure unsustainable.

Claire's revealed on March 30 that its net sales for the fourth quarter ended Jan. 30 dropped 2.4% to about $400 million, while same store sales were down 0.2%, while adjusted Ebitda declined to close to $81 million from almost $85 million.

Much of Claire's debt trades between 50 cents and 70 cents on the dollar. It also has 9% first lien notes due March 15, 2019, with $1.125 billion outstanding, that trade at 66.5 cents as of March 24, according to Bloomberg data.

In addition, the company has 8.875% second lien notes due March 15, 2019, with $450 million outstanding, that trade at 21.1 cents on the dollar as of March 21.

Claire's had nearly $20 million in cash as of Jan. 30, as well as debt of about $2.4 billion, while Ebitda was close to $45 million, according to Bloomberg. The retailer, however, said it generated adjusted Ebitda of almost $220 million on an annual basis. Based on those numbers, Claire's debt to Ebitda ratio is about 53.3 times, whiles it debt to adjusted Ebitda is approximately 10.9 times.


Perennially troubled Sears may be able to buy itself a bit more time to execute its strategy with a proposed $750 million term loan due in 2020 that will be used to pay down revolver borrowings.

"This definitely gives Sears an extension on life," said David Tawil, co-founder and portfolio manager at distress-focused hedge fund Maglan Capital LP, The Deal previously reported.

A $1.3 billion portion of the Hoffman Estates, Ill.-based department store operator's revolving credit facility matures April 8, but Sears said it would use the new loan proceeds to pay down the revolver borrowings.

Before Sears took out that loan, there were concerns in the market that the company could run out of cash in 2016, unless Sears sold assets or took other liquidity-boosting measures. Last year Sears burned through $2.5 billion. But despite the runway Sears has extended for itself, Tawil previously told The Deal that he's concluded that things will not end well for the company. "Someone will be left holding the bags, and those bags will not be worth much," he said.

But the end may be a ways away. The sale of its 268 unencumbered Kmart discount and Sears full-line mall stores could yield around $2.6 billion if the valuation is in line with what it received in a previous asset sale to Seritage Growth Properties (SRG), Fitch Ratings said.

The bulk of Sears' debt trades above 80 cents on the dollar. To note one example, it has 8% senior unsecured notes due Dec. 15, 2019, with $625 million outstanding, that trade at 81 cents on the dollar as of March 24.

It also has pieces of debt that mature between the years 2027 and 2032, totaling close to $200 million outstanding, that trade in the vicinity of 60 cents on the dollar.

J. Crew

Bad news follows bad for the New York-based preppy retailer, as the holding company for J. Crew Group Inc. recently said it will pay interest on $500 million of senior unsecured notes in kind rather than make a cash payment, actually adding to the amount owed.

According to the March 17 announcement by J. Crew, the move will increase the amount its parent Chinos Intermediate Holdings A Inc.'s owes by about $21 million. And for what? To fund a dividend payment to J. Crew's private equity owners, Leonard Green & Partners LP and TPG Capital LP.

On the other hand, J. Crew reported improved results for the fourth quarter, which actually gave debt investors more confidence in the retailer's turnaround. Fourth quarter results revealed that the retailer's revenue increased 1% to about $710 million, while comparable store sales were down 4%.

Operating income improved to about $6 million, compared to a loss of nearly $19 million for the same period a year prior. Net income was also better, recording a loss of $7 million compared to a loss of almost $31 million for the fourth quarter of 2014. Adjusted Ebitda, another measure of J. Crew's financial health, grew to $44 million, or by 4%, from about $42 million for the same period a year prior.

But distress is distress. Although J.Crew's most vulnerable debt, the 7.75% senior unsecured pay-in-kind (PIK) toggle notes due May 1, 2019, with $500 million outstanding, trade at 49.25 cents on the dollar as of March 22, according to data provided by Bloomberg, up sharply from trading at 25.5 cents on the dollar as of March 1, that's still a long way from par.

J. Crew's balance sheet is hardly reassuring, with cash and cash equivalents of close to $90 million and total debt, which doesn't include the PIK toggle notes, of about $1.53 billion.


Industry sources have told The Deal in the past that the children's segment is the most competitive it has ever been, extending from discount department stores such as


(TGT) - Get Report

TheStreet Recommends

and e-commerce player Zulily to Gymboree's direct competitor,

Children's Place

(PLCE) - Get Report


Given that, Gymboree can hardly afford what a March 17 report by Moody's characterizes as "weak execution," which the rating agency contends has sped its decline since its 2010 leveraged buyout by private equity firm Bain Capital.

Same store sales have been negative for the past three fiscal years, Moody's noted, and while projected adjusted Ebitda for 2015 is expected to slightly improve, free cash flow remains in the red.

The competition, missteps and the buyout have certainly taken a toll on the retailer's finances. As of Oct. 31, Gymboree had about $24 million in cash and close to $1.2 billion in debt, while generating almost $100 million in Ebitda. That's a debt to Ebitda ratio of almost 12 times.

The debt of the purveyor of children-related products has traded accordingly.

Gymboree has 9.125% senior unsecured notes due Dec. 1, 2018, with close to $350 million outstanding, that go for 33.525 cents on the dollar as of March 23, according to data provided by Bloomberg.

And it has first lien senior secured notes that generate interest of Libor plus 350 basis points due Feb. 23, 2018, with nearly $770 million outstanding. They trade at 61.5 cents.


Charlotte Russe 

Like so many others in the sector, San Diego-based Charlotte Russe faces a confluence of negatives, including a preponderance of mall locations and competition from aggressive fast fashion competitors also out for teen dollars.

It doesn't help that the company was taken private by Boston private equity firm Advent International Corp. for $380 million in cash in 2009, leveraging the middle-market retailer with debt to finance the transaction.

The situation is compounded by a poor quarter ended Oct. 15 and the aforementioned non-merry holiday shopping season.

Charlotte Russe hasn't disclosed its holiday sales figures, but the U.S. Census Bureau said on Jan. 15 that overall retail sales decreased in December 0.1%, adjusted for seasonal variation, compared with November, and that year-over-year, they were up 2.2%, which is considered disappointing.

Moody's downgraded Charlotte Russe on Jan. 25, and changed the retailer's outlook to negative. The report noted that lease-adjusted leverage was around 5 times Ebitda and opined that the challenging environment will continue to put pressure on Charlotte Russe over the next two years.

On the bright side, Moody's said Charlotte Russe should have adequate liquidity for the next year and a half, with close to breakeven free cash flow. The company had $6 million in cash on its balance sheet as of Oct. 31 and only had drawn $5 million of its $75 million asset-based revolver.

What about the six months to follow? Investors have their doubts. The retailer's first lien senior secured notes generating interest of Libor plus 550 basis points due May 21, 2019, with $150 million outstanding, trade at 74.625 cents on the dollar as of March 24, according to data provided by Bloomberg.

True Religion

If only fashion dictates were biblical commands. Once one of the most successful brands in the designer denim category, the maker of elaborate wide-legged, boot-cut, Western style denim has fallen off its saddle due to the rise of skinny jeans.

Standard & Poor's hit denim designer True Religion Apparel Inc. with a downgrade to CCC from B- on Dec. 18, based on what appeared to be an unsustainable capital structure.

S&P said at the time that it expected True Religion would have to rely on revolver borrowings to make interest payments on its debt. Slowing customer traffic plus increasing promotional activity among specialty retailers and sellers of premium denim won't help matters, the report warned.

TowerBrook Capital Partners LP, a private equity firm, paid $824 million to acquire Manhattan Beach, Calif.-based True Religion in July 2013.

Not much is likely to have improved since its Dec. 18 S&P downgrade.

Moody's said in its March 17 report that the denim brand's debt to Ebitda ratio stands at between 7 times to 8 times Ebitda, with total debt of about $450 million.

The ratings service said revenue and Ebitda declines in 2014 and 2015, plus spending on advertising and store remodels that appeared to have no impact, spelled poor harbingers if not End of Times for True Religion.

Debt investors must be wearing skinny jeans, too. True Religion has first lien senior secured notes with interest of Libor plus nearly 488 basis points (487.5) due July 30, 2019, with $400 million outstanding, that trade at 45.75 cents on the dollar as of March 24, according to Bloomberg.

Bon-Ton Stores 

Like other mall denizens, department stores as a whole have not had an easy go of it in recent years.

Bon-Ton, in particular, has seen same store sales and operating margins go south, straining its ability to reinvest in real estate and technology, according to Moody's, although the ratings service expects the retailer to stabilize.

The department store banner said that same store sales, a measure of the company's health, for the quarter ended Jan. 30 were down 1.9%, while total sales were down 1.6%. Adjusted Ebitda for the quarter also declined to nearly $94 million from about $113 million for the same period a year prior.

Much of Bon-Ton's debt trades above 80 cents on the dollar, but its 8% second lien notes due June 15, 2021, with $350 million outstanding, are trading at half that level as of March 24, according to data provided by Bloomberg.

Bon-Ton's poor balance sheet only had nearly $7 million in cash and cash equivalents and close to $1 billion in debt, while generating adjusted Ebitda of about $100 million as of Jan. 30. That means its debt to Ebitda ratio is a very scary 10 times.

Nine West

According to Moody's, leverage for Nine West is higher than a stiletto, with a debt to Ebitda ratio of 11 times. In fact, the footwear retail banner's total debt is more than $1.5 billion.

Sure enough, Nine West's 8.25% senior unsecured notes due March 15, 2019, with nearly $430 million outstanding, traded at 30.5 cents on the dollar as of March 18, and smaller pieces were debt trading even lower, according to data provided by Bloomberg.

A big bunion here is the brand's reliance in part on wholesale revenue generated by selling its product to the major department stores. And to boot, its own retail stores are also performing poorly, according to Moody's, while its shoe designs are no longer considered desirable.

Moody's believes that while the retailer's capital structure is not sustainable, its operating performance will ultimately stabilize. But that's small comfort to owners Sycamore Partners LLC, a savvy private equity firm that rarely misses.  


The discount shoe retailer, taken private by private equity firms Golden Gate Capital LP and Blum Capital Partners LP, Payless is finding it difficult to walk upright with a debt to Ebitda ratio of well above 5 times.

In fact, debt totals about $870 million, according to Moody's, which cited a number of factors in Payless' struggles. With negative free cash flow driven by foreign currency exchange rates, weather patterns and declining mall traffic, according to the ratings service, debt investors see few bargains in this bin.

Payless' first lien senior secured notes with interest of Libor plus 400 basis points due March 11, 2021, with $520 million outstanding, trade at 49 cents on the dollar, according to Bloomberg.

The shoe retailer also has a second lien secured term loan at Libor plus 750 basis points due March 11, 2022, with $145 million outstanding, that trades at 25.75 cents on the dollar.

99 Cents Only Stores

Taken private by private equity firm Ares Management LP and Canada Pension Plan Investment Board in 2012, 99 Cents Only Stores should have proven a hit, since it sells staples at a discounted price, typically appealing regardless of the cycle.

Instead, the discounter finds itself in a precarious position, according to Moody's, with same store sales declining 2.5% in the last three quarters of fiscal 2015.

The ratings service cited the company's failed promotions as well as its inability to manage inventory for the deterioration. And the California drought and the West Coast port strike haven't helped.

Investors have noticed: 99 Cents Only Stores' 11% senior unsecured notes due Dec. 15, 2019, with $250 million outstanding, trade at 36.538 cents on the dollar as of March 11, according to Bloomberg.

The discounter's first lien senior secured notes with interest of Libor plus 350 basis points due Jan. 13, 2019, with about $600 million outstanding, go for 63.875 cents as of March 24.

Cash as of Oct. 31, was nearly $3 million and debt close to $960 million, while adjusted Ebitda was a mere $60 million, for a whopping debt to Ebitda multiple of 16 times.



Hhgregg, a retailer of consumer electronics, home appliances and furniture, has seen its cash and cash equivalents and adjusted Ebitda both dwindle to $7 million and about negative $7 million respectively as of Dec. 31.

The decrease in cash was tied to its operating performance, as net sales for that quarter ending on that date were down 10.9%, while same store sales fell 10.8%.

As of March 21, 2014, the company was in a much better position, with cash of approximately $48 million and adjusted Ebitda of close to $47 million. But amind the improvement, Hhgregg saw its former CEO Dennis May leave in the middle of February. CFO Robert Riesbeck is serving as interim CEO.

Bebe Stores

Bebe is shrinking its headcount to cut costs and shaking up its management team as it experiences a swift decline.

In its second quarter, ended Jan. 2, the retailer's net sales were down 5% to about $122 million, while same store sales decreased 2.5% compared to an increase of 8% for the same period a year prior.

As of Jan. 2, the retailer had cash and cash equivalents of almost $54 million and adjusted Ebitda of nearly negative $11 million, a long way from the roughly $241 million and $40 million it had on June 30, 2012.


Improved performances by toy retailer Toys 'R' Us and department store chain J.C. Penney during the holidays give the two big box banners low-risk profiles as they begin their new fiscal years.

Toys 'R' Us 

J.C. Penney Co. is also not in much danger of filing for bankruptcy.

Bolstered by improving financial results, Toys 'R' Us is in much better shape than when last featured on The Deal's troubled retailers list.

First, the toy retailer hired Bank of America Merrill Lynch, Goldman Sachs Group Inc., and Lazard to launch a refinancing effort.

The news followed the company's announcement on Jan. 8 that its consolidated same-store sales during the five weeks ended Jan. 2 were up 2% compared with the same period last year, and the nine-week period ending that day showed an even greater improvement, rising 3.7%.

Toys 'R' Us also estimated that its adjusted Ebitda for the fiscal year ended Jan. 30 would be about $780 million, up 21% from its $642 million in adjusted Ebitda during the previous fiscal year.

The toy retailer has been working to deleverage its balance sheet ever since a $6.6 billion buyout that saw private equity firms Bain Capital LLC, Kohlberg Kravis & Roberts & Co. LP, and Vornado Realty Trust take ownership in 2005.

Standard & Poor's said on Feb. 2 that its B- rating and stable outlook for the private equity-backed retailer "incorporates an assumption the company will act to refinance its 2017 maturities."

Those maturities comprise $450 million in 10.375% senior unsecured notes due Aug. 15, 2017, and $725 million in 8.5% first-lien notes due Dec. 1, 2017.

The first-lien notes were trading at 98.27 cents on the dollar as of March 28, while the unsecured notes traded at 94.5 cents, according to Bloomberg.

Toys 'R' Us's $400 million in 7.375% senior unsecured notes due Oct. 15, 2018, traded at 75.397 cents on the dollar as of March 28.

The toy purveyor had $680 million in cash and cash equivalents as of Jan. 30, and debt of about $4.7 billion, with adjusted Ebitda of nearly $770 million, for a debt to adjusted Ebitda ratio of about 6 times.

J.C. Penney 

Its sales recovery continued in the fourth quarter, even as some competitors suffered.

J.C. Penney reported on Feb. 25 that same store sales were up 4.1% in the fourth quarter and increased 4.5% for the full year, both ended Jan. 30. The company also had $131 million in positive free cash flow for the fiscal year, with adjusted Ebitda of $715 million, a $435 million increase over the same period a year prior.

More importantly, the Plano, Texas-based department store chain looks to be out of immediate trouble because the value of its real estate well exceeds a nearly $2.2 billion first-lien senior term loan that was arranged by Goldman, Sachs & Co. in 2013.

Previous reports have pegged the value of the company's real estate, including its headquarters, at more than $4 billion. That means that the retailer can have money left after paying off the first-lien senior term loan with the sale proceeds.

Pre-emptively selling real estate to reduce debt and raise money before a recession could help J.C. Penney survive a downturn.

J.C. Penney's nearly $2.2 billion first-lien senior term loan, priced at Libor plus 500 basis points and due on May 22, 2018, last traded at about 100.125 cents on the dollar, according to data provided by Bloomberg.

That compares with the retailer's $400 million of 5.65% senior unsecured notes, due June 1, 2020, which last traded at about 94.25 cents on the dollar as of March 28.

The company had cash and cash equivalents of $900 million, as of Jan. 30, and debt of close to $4.8 billion, while adjusted Ebitda stood at about $520 million.

Jamie Mason and Lisa Allen contributed to this article.