By Subrat Patnaik and Jessica DiNapoli True Religion Apparel Inc, whose heavily adorned denim jeans have fallen out of fashion, filed for bankruptcy on Wednesday with a deal in hand to slash its debt of about $500 million and emerge from court protection quickly as a going concern.
The retailer joins American Apparel LLC, Payless ShoeSource Inc and other chains in bankruptcy as shoppers increasingly buy online, turning away from brick-and-mortar specialty shops and department stores, where True Religion makes the majority of its sales.
In court papers, a True Religion executive pinned the company’s financial difficulties on the growth of “athleisure,” a move away from denim to casual sports clothing outside of the gym. True Religion became a part of popular culture a decade ago as celebrities donned the denim and hip hop artists cited the brand in songs.
Under True Religion’s plan, its lenders will receive most of the equity in the reorganized company, whose debt load will fall by $350 million to $140 million. The company aims to exit bankruptcy in about four months, according to court papers.
True Religion’s owner, private equity firm TowerBrook Capital Partners, has also approved the company’s bankruptcy plans.
“We are taking an important step to reduce our debt, reinvigorate True Religion’s iconic brand and position the company for future growth and success,” True Religion Chief Executive John Ermatinger said in a statement.
The company’s restructuring plan provides for full payment of claims of its continuing trade creditors, which includes vendors, suppliers and landlords.
True Religion has 128 retail stores, whose sales make up almost 75 percent of its total net sales for its most recent fiscal year. The company also sells its denim through department stores including Nordstrom, Bloomingdale’s and Sakes Fifth Avenue.
The Manhattan Beach, California-based retailer secured a debtor-in-possession (DIP) loan from Citizens Bank for up to $60 million.
The premium denim maker filed its Chapter 11 petition in U.S. bankruptcy court in Wilmington, Delaware.
Reuters reported in October that the retailer had hired a legal adviser to explore several debt restructuring options.