NEW YORK – Forever 21 Inc. has filed for bankruptcy protection, adding another big fashion merchant to the tally of retailers who couldn’t cope with high rents and heavy competition.
Court papers filed in the Bankruptcy Court for the District of Delaware show Forever 21 has estimated liabilities on a consolidated basis of between $1 billion and $10 billion. The Chapter 11 filing allows the Los Angeles-based company to keep operating while it works out a plan to pay its creditors and turn around its business.
Forever 21 has obtained $275 million in financing from lenders with JPMorgan, Chase & Co. as agent, as well as $75 million in new capital from TPG Sixth Street Partners and its affiliated funds.
“The financing provided by JPMorgan and TPG Sixth Street Partners will arm Forever 21 with the capital necessary to effect critical changes in the U.S. and abroad to revitalize our brand and fuel our growth, allowing us to meet our ongoing obligations to customers, vendors and employees,” Linda Chang, executive vice president of Forever 21, said in a statement.
A bankruptcy filing could help Forever 21 get rid of unprofitable stores and raise fresh funds. This could be problematic for major U.S. mall owners, including Simon Property Group Inc. and Brookfield Property Partners LP, because Forever 21 is one of the biggest mall tenants still standing after a wave of bankruptcies. The busts emptied more than 12,000 stores in the past two years, and those vacancies may be hard to fill.
Simon counts Forever 21 as its sixth-largest tenant excluding department stores, with 99 outlets covering 140,000 square meters as of March 31, according to a filing.
Founded in 1984, Forever 21 operates more than 800 stores in the U.S., Europe, Asia and Latin America. It specializes in fast-fashion apparel — trendy, cheap, quickly made knockoffs of original designs that often are worn only a few times before being given away or tossed out. Competitors include Zara, H&M and Amazon.com.
Co-founder Do Won Chang has been focused on maintaining a controlling stake in Forever 21, which hindered efforts to raise new funds. Matters are likely to be out of his hands now, with creditors typically setting the agenda in bankruptcy proceedings and major decisions subject to a judge’s approval.
Kirkland & Ellis LLP is the company’s legal adviser, and Alvarez & Marsal is the restructuring adviser, and the investment banker is Lazard.