Gymboree is one step closer to bankruptcy – MarketWatch – MarketWatch

An earlier version of this article had an incorrect grace period for Gymboree to be in default in the second paragraph. It has been corrected.

Childrens clothing retailer Gymboree is expected to file for bankruptcy in the coming weeks or even days, after it elected not to make an interest payment on $171 million of bonds that was due on Thursday.

The troubled company, which has been in talks with investment banks and advisers on ways to repair its balance sheet since January, has a 30-day grace period before it is officially in default. But its expected to announce some kind of prearranged or prepackaged filing in the near term that will allow it to proceed in an orderly fashion, said Reshmi Basu, associate editor of restructuring at Debtwire.

Its a story that has been playing out for some time, she told MarketWatch. Now, well see the lenders take control, they will reset the footprint and work with advisers on which unprofitable locations should be closed down.

Like rivals, Gymboree has been suffering from the many factors currently clobbering the retail sector, from weak mall traffic trends to changing consumer behavior to the onslaught from Amazon.com Inc AMZN, +0.46% The rise of e-commerce is forcing many to invest heavily in their own online and delivery technology, at a time when sales are under pressure.

Gymboree is expected to keep its Janie & Jack line, which is still successful, but to ditch its Crazy 8 brand, which is flailing, said Basu. The company is in talks to retain Great American Group and Tiger Group, two companies that specialize in asset appraisals, liquidations and inventory auctions, she said.

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They will probably liquidate unprofitable brands and leverage the Janie & Jack line and beef up their e-commerce, she said.

Gymboree is another retailer that is saddled with debt taken on in a leveraged buyout. The company was acquired by Mitt Romneys former firm Bain Capital in 2010 for $1.8 billion. Today, the company has $1.043 billion of debt, split between a $769 million term loan, the $171 million of 9125% senior secured notes due December of 2018, an $80 million ABL revolving credit facility and a $49 million first-lien ABL term loan.

It had $22 million cash and cash equivalents as of Jan. 28, plus $73 million of restricted cash, according to a regulatory filing. Its leverage is more than 12 times, which is hard to sustain, said Basu.

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The companys bonds were last trading at 8.729 cents on the dollar, according to MarketAxess, deep into distressed territory. Its term loan was quoted at 44 cents to 46 cents on the dollar, according to Debtwire.

See also: Neiman Marcus is now borrowing money to make interest payments on its debt

Gymboree is one of the companies on Fitch Ratings list of loans and bonds of concern, which features those issuers with a significant risk of defaulting on their borrowings within the next 12 months.

In March, the company posted a $324.9 million loss for its fiscal second quarter, which included a $368.1 million noncash goodwill and intangible asset impairment charge and an $11.6 million charge related to excess inventories. Same-store sales fell 5% in the period.

But same-store sales for the Janie and Jack brand alone rose 11%, while same-store sales at Crazy 8 fell 6%.

The SPDR S&P Retail exchange-traded fund XRT, -0.02% has fallen 6% in 2017 so far while the S&P 500 SPX, -0.12% has gained 9%.

See also: From a risk-of-bankruptcy standpoint, the retail business is the new oil and gas

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