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LOS ANGELES—Embattled retailer Forever 21 has filed for Chapter 11 bankruptcy with plans to close up to 178 stores in the US and as many as 350 outlets globally. As part of its restructuring, the retailer will to exit most of its international locations in Asia and Europe, but will continue operations in Mexico and Latin America.
“This was an important and necessary step to secure the future of our company, which will enable us to reorganize our business and reposition Forever 21,” Linda Chang, executive vice president of Forever 21, said in prepared remarks.
In the meantime the retailer plans to continue its operations using capital it has secured from lenders. Namely, Forever 21 has obtained $275 million from its existing lenders with JPMorgan Chase Bank, N.A. as agent, as well as $75 million in new capital from TPG Sixth Street Partners. It will also use the bankruptcy proceedings to right size its store base and re-evaluate its business and retailing strategy—although it remains committed to the fast fashion, according to Chang.
“The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the US and abroad to revitalize our brand and fuel our growth,” Chang also says.
As part of its restructuring, the retailer will also seek to renegotiate leases with landlords for the stores that it does plan to keep open, Dustin Branch, a litigation and bankruptcy partner in Ballard Spahr Los Angeles office tells GlobeSt.com. “The extent and scope of any such rent relief will be subject to the individual negotiations between [Forever 21] and the individual landlord,” he says.
Generally speaking, companies that file Chapter 11 have 120 days to decide whether they will assume or reject their leases—a period Forever 21 may extend by 90 days upon bankruptcy court approval, Branch says. In many retail cases, the debtor or its real estate consultant will seek rent relief from landlords as a condition to assuming, or assuming and assigning, the lease in the bankruptcy case. The landlord has the option to accept the request, counter with an alternative rent relief, or refuse the request for rent relief. “However, if landlord and debtor do not agree on rent relief, the landlord takes the risk that the debtor may reject the lease,” Branch says.
Two of Forever 21’s main landlords, Simon Property Group and Brookfield Properties retail group apparently wanted to forestall such an eventuality. The two REITs, according to news accounts, have in negotiations with Forever 21 to buy a stake in the company that would keep it afloat. It is unclear whether these talks are still ongoing or have been shelved.