Bankrupt True Religion Asks to Convert More Than Half Its Debt to Equity

In its Chapter 11 plan filed on Tuesday, True Religion shared plans to switch more than half its debt for equity.

The Manhattan Beach, Calif.-based apparel company, which filed for Chapter 11 protection in April, has roughly $110.5 million in first-lien term loan debt and owes $28.8 million on an asset-based loan facility, according to court documents. The plan submitted to U.S. Bankruptcy Court for the District of Delaware Tuesday would convert $45.6 million of the term loan debt into second-lien debt, with the option of conversion to equity; the remaining approximately $65 million in term loan debt would be swapped for equity. In addition, True Religion plans to pay back unsecured creditors using any funds clawed back from pre-petition transfers.

In court documents, True Religion said the coronavirus crisis precipitated its filing, writing that it “would have preferred to wait out the current instabilities of the financial markets and retail industry generally” but “simply could not afford to do so.” At the time of its Chapter 11 filing in April, True Religion operated 87 retail stores with roughly 1,000 employees. The coronavirus crisis forced the company to temporarily shutter all units, as well as to lay off more than 90% of its employees and to cut pay for remaining staff by 30%, according to court documents.

Founded in 2002, True Religion first filed for bankruptcy in 2017, reemerging four months later. At the time, the retailer said it planned to expand its e-commerce globally as well as to increase its brand awareness and licensing. However, the company’s challenges appear to have continued: For the fiscal year ended Feb. 1, 2020, True Religion posted a net loss of $50 million on $259 million in net revenue. For the 12 months ended Feb. 1, the company reported total assets of about $208 million, versus $250 million in liabilities on a consolidated basis.

During the coronavirus crisis, retailers across the fashion and footwear industry have had to contend with numerous challenges — including government-mandated temporary store closures and a reduction in discretionary spending. To bolster their liquidity, companies have taken steps such as furloughing workers, reducing operating expenses and drawing down on their revolving credit lines. While True Religion was one of the first retailers to file for bankruptcy amid the pandemic, a growing list of companies — including JCPenney, Neiman Marcus Group and Stage Stores — have since submitted Chapter 11 petitions.

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