Nine West Holdings Inc. has filed a voluntary petition for Chapter 11 bankruptcy court protection.
The filing was made on Friday in a Manhattan bankruptcy court. The petition lists estimated assets of $500 million to $1 billion, with estimated liabilities of $1 billion to $10 billion. In addition to Nine West, 10 affiliates filed for bankruptcy court protection, including Kasper Group and One Jeanswear Group. One Jeanswear includes the brands Gloria Vanderbilt and Jessica Simpson. It also includes women’s denim under the Nine West and Bandolino brand names.
The company said the filing was done to “facilitate the sale of its Nine West and Bandolino footwear and handbag business and to right-size its capital structure around its profitable and growing businesses, including One Jeanswear Group, The Jewelry Group, the Kasper Group and Anne Klein.”
Its Nine West and Bandolino businesses are slated to be sold to brand management firm Authentic Brands Group. ABG will take on the role of “stalking horse,” in a court-approved auction process. That also means that the brand management firm could be outbid in the auction should other buyers come forward with better offers.
Ralph Schipani, chief executive officer of Nine West Holdings, said, “This is the right step to address our two divergent business profiles. We will retain our strong, profitable and growing apparel, jewelry and jeanswear businesses and continue to operate them under a new capital structure so that we can leverage their existing strengths to drive even greater growth. Once we complete the reorganization process, our company will have meaningfully reduced debt and interest costs and be well positioned for the future.”
In a court document filed with the bankruptcy court by Schipani, he said the company’s business operations generated $1.6 billion in net revenues in 2017, and that at the time it filed its Chapter 11 petition, Nine West had “$1.6 billion in aggregate funded debt obligations.”
In addition to the challenging business conditions in the U.S. at the department store level, the company also faced strong headwinds as the “macro retail environment in Asia, the Middle East and South America became challenged.” Schipani also said its handbag and footwear business had issues with product quality, along with design missteps. While the company made some positive changes, the “lengthy development cycle” and the nature of the business didn’t allow time for operating performance to improve, he said.
According to the ceo, one bright note is that the company has been able to combat some of the challenges at retail for its apparel businesses through a combination of “expense controls, margin improvement and the launch of new and successful licensed and owned brands.”
The company said it has received $300 million in debtor-in-possession financing from parties that hold or control “over 78 percent of its secured term debt and over 89 percent of its unsecured term debt.” Nine West said the DIP facility, plus cash generated from its operations,” would provide sufficient liquidity to allow the firm to maintain its operations in the ordinary course during the Chapter 11 proceedings.
Friday’s filing for bankruptcy court protection wasn’t surprising, given that Nine West had been on the watch lists of credit ratings agencies. Moody’s Investors Service and Fitch Ratings had cited Nine West’s high debt level and deteriorating operating performance due to challenges in the women’s jeanswear market.
Nine West was part of Jones Apparel Group, which was acquired by private equity firm Sycamore Partners in April 2014 for $2.2 billion. Sycamore split the Jones business into different groups. Nine West operated as a separate portfolio company under Sycamore’s umbrella, as did the Kasper Group.
In December 2016, Nine West Holdings sold its Easy Spirit brand to Marc Fisher Footwear Co. Marc Fisher had worked at Easy Spirit during his tenure at Nine West, which was cofounded by his father, Jerome Fisher, and Vince Camuto in 1973 and was later acquired by Jones Apparel Group in 1999. Nine West used the net proceeds from the sale to acquire Kasper, which it disclosed on Jan. 17, 2017.
At the time, Schipani said, “With the Easy Spirit transaction, the company has sold an underperforming asset with negative EBITDA and reinvested the proceeds into a profitable Kasper business that we believe will bring immediate improvement to the company’s cash flow and liquidity, resulting in a significant deleveraging of the company.”
Nine West in the fall of 2016 had about $1.7 billion in debt, and had to renegotiate a $275 million credit facility so it could access the line without tripping a loan covenant. While the renegotiated facility and the sale of Easy Spirit eased some of the financial pressure, it couldn’t do much for the ongoing challenges at retail that continue to this day due to the shift in how consumers buy apparel and accessories.
A few days after Nine West said it entered into an agreement to acquire Kasper, Moody’s downgraded the corporate family rating of Nine West Holdings to “Caa3” from “Caa2.” Moody’s analyst Mike Zuccaro said at the time the downgrade reflected the company’s “very high leverage and unsustainable capital structure due to weak operating performance and high debt levels.”