True Religion filed its voluntary Chapter 11 petition for bankruptcy court protection on July 5, saddled by an overleveraged balance sheet. The high debt load was due to the leverage piled on when TowerBrook Capital Partners acquired the denim company in May 2013 for $835 million. At $32 a share, the acquisition price represented a premium of 52 percent to the per-share price just before the apparel brand began evaluating its strategic alternatives. The company also was impacted by the macro consumer shift away from brick-and-mortar to online retail channels.
According to a court document filed by Dalibor Snyder, True Religion’s chief financial officer, an agreement among certain creditors including TowerBrook to the right-sizing of the denim firm’s balance sheet and provide a fair recovery to all stakeholders resulted in a 71 percent deleveraging of the firm’s balance sheet. The agreement cut the $493 million in debt at the time of the Chapter 11 filing down to a proposed $139.5 million when the company emerges from bankruptcy court proceedings. Further, the more than $386 million of prepetition first-lien claims would be converted into new equity of the reorganized company and new reorganized first-lien loans upon emergence.
The bankruptcy filing and the new plan of reorganization also proactively addressed True Religion’s 2019 and 2020 debt maturities.
Based in Manhattan Beach, Calif., the denim brand had been on the watch list of some credit rating agencies. The Chapter 11 filing followed a long list of retailers and brands that have filed for bankruptcy court protection this year. Those filings have included: Papaya Clothing; Gymboree; Gander Mountain; Rue21; Payless; Gordmans; The Limited and BCBG Max Azria. Unlike many who have gone to the retail graveyard, True Religion has joined a small group — Payless and Rue 21 — who get to live to fight another day.