August 1, 2017 / 11:14 PM / 2 years ago

LPC: David's Bridal lenders hire Rothschild as retail defaults spike

(Reuters) - A group of lenders to troubled wedding gown-retailer David’s Bridal has hired investment bank Rothschild to start debt restructuring talks ahead of 2019 when roughly US$500m in loans will come due, according to three sources close to the situation.

Though the move is largely proactive given a lack of near-term default triggers, lenders don’t want to be left at the altar. The mandate is preempting a potential debt default of the Clayton, Dubilier & Rice-owned retailer.

The company’s roughly US$500m term loan is currently trading at 73-75 cents on the dollar, according to two separate sources.

Retail defaults and bankruptcies have crowded court dockets with Gymboree, Rue21, Payless and True Religion all filing for bankruptcy this year. Brick-and-mortar retailers have been challenged by online companies such as Amazon.com, while the sector overall has battled shifting consumer tastes and widespread promotional activity.

CD&R and Rothschild declined to comment. The company did not respond to requests for comment.

Alfred Angelo, another bridal company, filed for bankruptcy last month, leaving many brides in a bind. Following that filing, David’s Bridal told upset brides-to-be it could still help them have the day of their dreams, offering a discount on replacement dresses.

A spike in bankruptcy filings has pushed the US institutional leveraged loan retail default rate to more than 5% in July from 2.8% at June 30, according to a July 25 report from Fitch Ratings. The ratings firm said the year-end retail default rate could be 9%.

Fitch lists David’s Bridal as one of the most “concerning issuers” in the institutional loan market given its default risk, according to the report.

Moody’s Investors Service changed its outlook on the company to stable from negative in September, citing improved liquidity including a revolver maturity extension and expectation for positive free cash flow, according to a September 19 report.

The ratings firm had previously downgraded the company’s corporate family rating to Caa1 in January 2016 saying the rating reflects David’s Bridal’s “unsustainable capital structure and uncertainty regarding the company’s ability to turn around its operating performance on a sustained basis.”

More recently, Standard and Poor’s in March downgraded the company’s corporate credit rating one notch to CCC+, citing adjusted leverage over seven times and “limited expected prospects for a meaningful rebound” in earnings before interest, taxes, depreciation and amortization.

As part of the purchase in 2012, CD&R said Leonard Green & Partners would continue as a minority partner, according to a news release from that time. In addition to the term loan, the transaction was financed with a US$270m unsecured bond, which matures in 2020.

Reporting by Kristen Haunss and Andrew Berlin; Editing By Michelle Sierra

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