When word came last month that Payless ShoeSource was on the verge of filing for bankruptcy and potentially closing hundreds of stores in the near future, there was hope in Michigan’s Great Southwest that the Orchards Mall store would survive the cut, just as the Mall’s JCPenney store had done earlier in the month. We now know that there will be no such luck this time around. The Orchards Mall Payless store is on the list today of nearly four hundred underperforming stores that will be closing, the Niles store however, is not.
Payless ShoeSource is the largest specialty family footwear retailer in the Western Hemisphere, however their announcement this morning that they have filed a voluntary petition for reorganization pursuant to Chapter 11 of the U.S. Federal Bankruptcy Code has placed many stores on a list to be closed.
To facilitate the financial and operational restructuring necessary to strengthen its balance sheet and position the company for long-term success, they were forced to make the decision to declare bankruptcy and move into a fast-moving restructuring plan. Payless will continue to operate its business in the ordinary course in terms of its customers, vendors, partners and employees at those location which will remain, including their store at 2706 S. 11th Street in Niles, which is not targeted for closure at this time. Also closing in Michigan are stores in Adrian, Cadillac, Detroit, Monroe, Okemos, Bay City, Alpena, Sterling Heights, and Big Rapids.
In conjunction with the restructuring, Payless has entered into a Plan Support Agreement (PSA) with parties who hold or control approximately 2/3 of its first lien and second lien term debt to reduce its debt load by almost 50-percent, materially lower its annual cash interest costs, access significant additional capital and provide a path to an expedited emergence from Chapter 11 with a sustainable capital structure for the future.
Under the agreed plan with its lenders, Payless intends to use the Chapter 11 process to accomplish specific objectives:
- Strengthen its balance sheet and restructure Payless’ debt load;
- Invest in specific areas that Payless believes will provide sustainable growth including omnichannel expansion; product and inventory initiatives; and international expansion in Latin America and elsewhere; and
- Optimize its store footprint, with the immediate closure of nearly 400 underperforming locations in the U.S. and Puerto Rico and work to aggressively manage the remaining real estate lease portfolio either by modifying terms, or evaluating closures of additional locations.
Paul Jones, is Payless Chief Executive Officer. He says, “This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify. We will build a stronger Payless for our customers, vendors and suppliers, associates, business partners and other stakeholders through this process. While we have had to make many tough choices, we appreciate the substantial support we have received from our lenders, who share our belief that we have a unique opportunity to enable Payless — the iconic American footwear retailer with one of the best-recognized global brands — to remain the go-to shoe store for customers in America and around the globe.”
The company is promptly seeking immediate relief from the court though the filing of customary first day motions that will allow the company to smoothly transition its business into Chapter 11, including, among other things, granting authority to pay pre-filing wages, salaries, benefits, honor customer programs, and pay vendors/suppliers in the ordinary course for all goods and services provided on or after the filing date.
Additionally, the company has negotiated agreements with certain of its existing lenders to provide Payless access of up to $385 million of debtor-in-possession financing, which includes access to $305 million of ABL financing and up to $80 million of new term loan financing. In total, the debtor-in-possession financing will provide Payless with access to up to $120 million in incremental liquidity during the Chapter 11 cases. This incremental liquidity will ensure that suppliers and other business partners/vendors will be paid in a timely manner for authorized goods and services provided during the Chapter 11 process, in accordance with customary terms. The $80 million of new term loan financing will also ensure the company has the exit financing required to emerge from Chapter 11 well positioned for future growth and profitability post-restructuring.
CEO Jones adds, “We are confident that this process will also enable us to leverage Payless’s existing strengths to succeed.” He points out, “These strengths include our ability to produce significant free cash flow and, even last year, flat EBITDA despite unprecedented challenges and in contrast to many retailers; our portfolio of strong proprietary brands, along with unique licensing agreements with premier brands and partners; our best-in-class design and sourcing capabilities that enable the company to offer customers high quality products at a significant discount to peers; our strong and growing Latin American business, and a lean and scalable franchise model for other markets.”
Consumers will have full access through the Payless corporate website www.paylesscorporate.com to information about the location of stores at which they can shop if their current store is being closed, as well as information about going-out-of-business sales.
The Company has also established a call center for questions: 844-648-5574 if calling from within the U.S. or Canada, or +1 347-505-5254 if calling from outside the U.S. or Canada.
Payless has approximately 4,400 stores in more than 30 countries and was founded in 1956 in Topeka, Kansas where its global headquarters remains today.
