By  on September 11, 2017
Exterior view of a Bon-Ton store

The upcoming holiday season could be a painful one for some stores, one that could turn 2017 into the year of retailer bankruptcies.Factors, credit analysts and other credit sources said the holiday selling season could be a make-or-break time for certain retailers — think Shopko and The Bon-Ton Stores Inc. — due to the ongoing upheaval on the consumer front as shopping habits change.Shopko and Bon-Ton are the most pressured, and credit sources are not ruling out the possibility of a bankruptcy filing even before the peak of the holiday season. Typically, retailers wait until January so they can take the holiday receipts and walk into bankruptcy court with cash on hand to help with the restructuring process.Others on their watch list include Stein Mart and Stage Stores Inc. But the concern there is less about how badly those companies have been doing and more about the potential impact from Hurricane Harvey and expected damage from Hurricane Irma given the heavy concentration of those companies' stores in the affected regions.On the specialty store side, there’s the ongoing chatter about the finances of Neiman Marcus Group and Barneys New York. Also often mentioned are women’s accessories chains Charming Charlie and Claire’s Stores. And there's been speculation about others — whether contemporary fashion brand Vince Holding Corp. can turn itself around; questions regarding Indra Holdings, the company that owns the Totes Isotoner brand, and Everest Holdings, the parent company of outdoor brand Eddie Bauer, which is said to be up for sale.Retailers that sell apparel and accessories aren’t the only ones wondering where the customers are these days. Toys 'R' Us is speculated by many to be on the brink of a bankruptcy filing. Food retailer Fairway Group Holdings could be on its way to a second bankruptcy filing. Also, 99 Cent Only Stores and the parent company of thrift chain Savers’, Evergreen AcqCo 1 LP, are said to be on the watch list of credit analysts as well.Almost all of these retailers and brands have been mentioned in one list or another compiled within the last 18 months by one of the three major credit ratings agencies: Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

Financiers noted that some lenders and factors have been tightening credit lines because of losses sustained from retailers that have already filed their Chapter 11 petitions this year — namely The Limited; Wet Seal; Hhgregg; Radio Shack; Gymboree; Payless Shoes, and Rue21.

A New York factor said Rue21’s filing had many lenders rethinking their policies. “Rue21 in March was telling everybody they were doing well and everyone was supporting them. Weeks later it filed Chapter 11, after saying that all the factors were supporting them. [One of my competitors] is pulling credits lines prematurely [on a few accounts] because it was hit badly with Rue,” he said.This individual declined to disclose the exact loss, but said it was north of $10 million. Rue21, a mall-based juniors apparel chain, filed its Chapter 11 petition in May, hurt in part by both declining mall traffic and interest from teens.The growing cautiousness of lenders is bad news for retailers. [caption id="attachment_10976923" align="aligncenter" width="600"] A Shopko store.[/caption]In the case of Shopko and Bon-Ton, factors said the two have been relying on letters of credit more for at least the past 30 days to pay for goods on delivery. One source familiar with Shopko's operations, who asked not to be identified, noted that the company has been using letters of credit for a “long time” as part of its “ordinary course of business," suggesting that much of its inventory is from overseas where letters of credit are the norm for payment.In the case of Shopko, a few factors as of Friday were still checking on an order-by-order basis, but they are also adding a surcharge to guarantee any approved orders. The growing concern, particularly among lenders and some vendors, is that the chain is a likely candidate for a Chapter 11 filing. Shopko is a Sun Capital Partners portfolio firm.If there should be a filing, it would follow on the heels of other Sun Capital firms that have filed in the retail sector within the past year, The Limited and Gordmans. The private equity firm also has a stake in another company that’s on the credit ratings agencies’ watch list — Vince. Executives at Shopko and Sun Capital both declined comment. The source with knowledge of Shopko’s operations said there’s “no truth to the rumors of a bankruptcy.” This person added that Shopko is “current on its payments to all of its vendors.”As for Bon-Ton, factors began pulling credit lines back in May, so its distressed state isn’t exactly a surprise, and the pressures it faces are exacerbated by a higher apparel and accessories focus in its merchandise mix compared with some competitors.One financier said the availability on Bon-Ton’s credit facility has been going down, and that its use of letters of credit has jumped from $5 million to $25 million in the last month or two. This person said there is a provision in the credit agreement that allows for up to $150 million in standby letters of credit.The thinking is that when retailers rely more and more on letters of credit, that means vendors are getting nervous and want some assurance of payment when the goods are delivered, as opposed to the usual 30 to 60 days, or even 90 days, when the balance sheet is in order. One individual said the “concern has been ongoing for the last four or five months, and it is getting to the critical stage.”The factor who noted the losses sustained by lenders on Rue21’s filing raised a similar concern over Bon-Ton: “The company has been positive in their earnings call [on turnaround initiatives] and the future outlook. I’m concerned that they are overly optimistic. It seems they haven’t had a profit since 2010.” He added that Bon-Ton could be a candidate for a bankruptcy filing in January, if not sooner. A spokesman for Bon-Ton could not be reached for comment.At the end of August, Reuters said Bon-Ton had hired AlixPartners to advise on a turnaround plan, while on Thursday The Wall Street Journal said restructuring firm PJT Partners was added to the list of advisers. A spokesman for AlixPartners declined comment, while queries to PJT for comment were not returned.

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