The Ascena Retail Group got a jump-start Friday on its Chapter 11 restructuring when the bankruptcy court gave the company permission to access cash, continue paying salaries and benefits to employees, and to move forward on its massive store closing plan.
Ascena filed for Chapter 11 bankruptcy on Thursday in U.S. Bankruptcy Court for the Eastern District of Virginia.
The court granted Ascena access to more than $430 million in cash collateral, to honor certain customer and vendor commitments and otherwise manage its day-to-day operations as usual, Ascena said Friday.
The Mahwah, N.J.-based retailer told WWD that it plans to close about 1,100 of its 2,700 stores, including all stores in Canada, Puerto Rico and Mexico, and all Catherines stores. Catherines sells plus sizes.
In addition, Ascena will close a “significant” number of Justice stores and a “select” number of Ann Taylor, Loft, Lane Bryant and Lou & Grey stores. Last year, Ascena liquidated its Dressbarn chain and sold off the Maurices chain.
Ascena has agreed to sell the intellectual property of Catherines to plus-sized fashion retailer City Chic and its property assets and Catherines’ e-commerce business to a subsidiary of City Chic, which becomes the stalking-horse bidder for Catherines. The sale will be subject to a court-supervised auction, which could bring in higher bidders.
Ascena told WWD that the restructuring agreement and support from lenders “will allow us to pursue a financial restructuring on an expedited timeframe (though) there is not a definitive timeline to share today.”
The company is operating with about 95 percent of its store base reopened, though all nonessential retailers may have to reclose stores due to the recent spike in coronavirus cases in many states.
Gary Muto, Ascena’s president and chief executive officer, said Friday, “We are pleased to have received prompt approval of these first-day motions, which will enable us to continue providing our associates with wages and benefits, maintain our outstanding relationship with our vendor community and serve our customers across our brand portfolio with fashion, inspiration and meaningful experiences every day. We are appreciative of the strong support from our lenders to help mark a new start for our company. By entering into a comprehensive plan to deleverage our balance sheet, right-size our operations and inject new capital into the business, we will be better positioned to deliver profitable growth of our iconic brands and drive value for all of our stakeholders.”
As previously revealed, Ascena entered into a restructuring support agreement with more than 68 percent of its secured term lenders. The prearranged financial restructuring plan is expected to significantly reduce Ascena’s debt by about $1 billion.
The next hearing is when Ascena hopes to get approval on the $150 million term loan from existing lenders. This financing, plus the company’s cash flow from its businesses, according to the company, is seen as sufficient to meet its operational and restructuring needs.
Ascena has Kirkland & Ellis LLP serving as legal counsel, Alvarez and Marsal Holdings LLC serving as restructuring adviser and Guggenheim Securities LLC serving as financial adviser.
According to the company, COVID-19 cut short progress the company was making in turnaround efforts last year and up until the outbreak. However, Ascena has long been suffering from weak sales and profits and was hampered by large debt.