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Debunking True Religion’s restructuring

By Angela Gonzalez-Rodriguez

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Business

ANALYSIS

Californian jeans brand True Religion Apparel Inc filed for bankruptcy on Wednesday in a move to cut its debt of about 500 million dollars and secure Chapter 11 protection against bankruptcy. The retailer hired a legal adviser in October to explore several debt restructuring options.

"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, commenting on its Chapter 11 petition, filed in U.S. bankruptcy court in Wilmington, Delaware.

According to sources close to the matter, the company expects to obtain confirmation of its pre-arranged reorganization plan in three to four months. It’s worth recalling that prior to filing with the bankruptcy court, the Californian retailer had secured investor support for a comprehensive financial recapitalization from a substantial majority of its lenders and its owner, TowerBrook Capital Partners.

Reuters reported in October that the retailer had hired a legal adviser to explore several debt restructuring options.

Why seeking for court’s protection against bankruptcy?

True Religion’s plan is to cut its debt by over 350 million dollars and convert it into the substantial majority of the reorganized company’s equity. As part of the plan, True Religion is seeking to cancel leases on 18 stores in some of the toniest markets in the country, including mostly street-front stores, highlights analysts from ‘Seeking Alpha’.

The company's restructuring plan provides for full payment of claims of its continuing trade creditors, which includes vendors, suppliers and landlords. Under True Religion's plan, its lenders will receive most of the equity in the reorganized company, whose debt load will be reduced by 350 million to 140 million dollars.

The company aims to exit bankruptcy in about four months, according to court papers.

Why now?

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.

As revealed by the court papers accessed by Reuters, True Religion explained a good deal of the retailer's financial difficulties on the growth of "athleisure," as consumers move away from denim to wear casual sports clothing outside of the gym.

Other adverse trends affecting True Religion were the generalized consumer shift away from brick-and-mortar to online retail channels, as well as the premium denim market segment’s decline, resulting in recent losses, according to True Religion CFO Dalibor Snyder in bankruptcy court filings.

As a result, over the past several years, the company has aggressively cut costs and taken other internal restructuring measures, including three reductions in force and several closures of underperforming stores, and explored many alternatives to loosen existing liquidity.

“After a careful review, 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,” said John Ermatinger, CEO of True Religion.

CEO at True Religion remains positive about the company’s future “I am also proud to announce that year-to-date adjusted EBITDA through May at 7.1 million dollars is up 95 percent versus last year. This improved performance will allow us to enter into the next phase of our recapitalization process with confidence as we continue to execute against our strategic plan and drive the business forward,” summarized the company’s development its CEO.

Globally, the company has 140 True Religion and Last Stitch retail stores and over 1,900 employees. For the fiscal year ended Jan. 28, 2017, the company reported total assets of 243.3 million dollars against 534.7 million dollars of liabilities.

For the 12 months ended then, the company generated 369.5 million dollars of net revenue and posted a net operating loss of 78.5 million dollars.

True Religion