Ratings agency Moody’s Investors Service on Monday downgraded the corporate family rating of children’s retailer Gymboree to “Ca” after it failed to make a June 1 interest payment.
The retailer said earlier in the year that it would not be making the payment. Specifically, Gymboree said in March that it was getting short on cash, and financial sources last month said that hadn’t changed.
The move by Moody’s follows a similar downgrade on Friday by competing credit ratings firm S&P Global Ratings. The S&P lowered Gymboree’s corporate credit rating to “D” from “CC.”
Both ratings firms said they do not expect the company to make the payment, or any other payments, on its debt obligations. They expect a general default following a 30-day grace period. Moody’s also said the “company may have difficulty refinancing its debt without restructuring or impairment to lenders.” The S&P said the company is negotiating with lenders and bondholders to restructure its debt.
About $872 million of Gymboree’s $1.1 billion total debt is due within 12 months.
There’s been speculation that Gymboree is close to filing a Chapter 11 petition for bankruptcy court protection, and that if one is filed, it would likely be a pre-packaged filing given the current negotiations — it’s been working with financial advisers since January to figure out its best options for restructuring debt — with lenders and bondholders.
Fitch Ratings last month in a report on U.S. leveraged loan default rates also referenced a possible bankruptcy filing by Gymboree.
Gymboree is expected to file for bankruptcy sometime this month.
Private equity firm Bain Capital acquired the children’s retailer in 2010 for $1.8 billion.
Based in San Francisco, Gymboree saw its chief executive officer Mark Breitbard electing to step down once a successor is found. On May 22, the retailer said Daniel Griesemer, 57, was named president and ceo. His background includes stints at Tilly’s, Coldwater Creek, Gap and Macy’s. Griesemer’s appointment suggests that Gymboree is eyeing a go-forward strategy that involves a turnaround plan.
There’s also been talk that should the retailer file a Chapter 11 petition, it may involve the closure of up to 350 stores. That would add to the stores already closed or in the process of closing.
According to a report from global think tank Fung Global Retail & Technology, closings have been announced for 3,296 stores for 2017, up 97 percent from the same period last year.
In comparison, the think tank’s report noted 1,674 announced store closings in 2016.