Fashion retailer rue21 found itself in Chapter 11 once again, this time seeking to conduct store closing sales and wind down its operations.

The company comes to Chapter 11 backed by a cash collateral deal with prepetition ABL agent Bank of America. rue21 previously filed for bankruptcy in 2017, and the company reduced its debt load by about USD 700m and closed hundreds of stores.

rue21 will have a first day hearing for tomorrow (3 May) at 10:30am ET in the US Bankruptcy Court for the District of Delaware.

Debtwire Dockets: New rue21 Holdco Inc

The company

rue21 is a fashion retailer focused on “affordable fashion, accessible to all,” according to a first day declaration from interim CEO Michele Pascoe. The debtors maintain control over their proprietary brands by designing, sourcing, marketing and selling their own merchandise through the company’s large retail footprint.

rue21 operates over 540 brick-and-mortar stores located in strip malls, regional malls and outlet centers throughout the US, and the company also offers its products through its website. The company’s primary demographic is adolescent and young adults, with the average customer household income at about USD 50,000 annually and core customers focused on making “value priced purchases,” Pascoe said.

rue21 is based in Warrendale, Pennsylvania, near Pittsburgh, and it also has a distribution center in Weirton, West Virginia, Pascoe said.

The debtors are the successor to Pennsylvania Fashions Inc, which was founded in 1970 and faced its own bankruptcy that was closed in 2003. Upon emergence from the 2003 bankruptcy proceedings, Pennsylvania Fashions changed its name to rue21. rue21 then became a publicly traded company in 2009 on the NASDAQ Global Select Market under the ticker symbol RUE.

rue21’s operations expanded greatly from 2009 to 2013, with the company doubling its storefront count from 500 to 1,000 in that period, Pascoe said. The company’s majority owners took rue21 private through a share buyback transaction in 2013. rue21 continued growing until 2017, when it became evident that the company’s legacy operating structure was no longer sustainable amid increased competition and consumer shifts away from physical retail stores, Pascoe said.

rue21 filed for bankruptcy in 2017 seeking to hold store-closing sales for about 400 of its retail locations and to restructure its debt. The company was backed with a restructuring support agreement (RSA) that proposed handing the majority of its equity to holders of its USD 521m term loan debt. rue21 emerged from the 2017 proceedings having reduced its indebtedness by over USD 700m, Pascoe said.

Prepetition term loan agent Blue Torch Finance holds a significant majority, about 80%, of the common stock of debtor r21 Holdings Inc, which wholly owns debtor New rue21 Intermediate Inc, which in turn wholly owns New rue21 Holdco Inc (Holdco). Holdco wholly owns New rue21 LLC, which then wholly owns r services llc and New RSC LLC.

Source: Declaration of Michele Pascoe

The debt

The debtors reported about USD 194.4m in outstanding debt. rue21 had USD 29.7m outstanding on a senior secured ABL facility with Bank of America as administrative agent, collateral agent, L/C issuer and swing line lender. The company also had about USD 164.7m outstanding under a senior secured term loan facility with Blue Torch as administrative agent and collateral agent.

rue21 also had about USD 65m outstanding on account of unsecured trade claims, Pascoe said.

The descent

Pascoe said the COVID-19 pandemic and adverse market trends’ impact on the retail industry have presented challenges to rue21’s business operations. The debtors have faced operational losses resulting from underperforming retail locations, increased industry competition, an increase in online shopping, macroeconomic headwinds like inflation and difficulties raising capital, she said. rue21’s revenue streams are insufficient to meet long-term liquidity needs and working capital requirements, even when combined with “extensive” cost-cutting measures, noted Pascoe.

During a prepetition marketing process, it became clear that proposals to purchase rue21’s assets at a going concern value would not bring in the proceeds that could be realized by a liquidation of the debtors’ store-level inventory and assets, closing stores and winding down operations. rue21 selected a store closing consulting proposal from Gordon Brothers Retail Partners.

For assets that will not be sold in store closing sales — such as intellectual property and other intangible assets — rue21 will seek approval of a bid procedures motion and the entry into a stalking horse agreement, Pascoe said. That sale process will run on a parallel timeline with the store closing sales, and those sales are all set to close within the next two months, she said.

Bank of America agreed to consent to the use of cash collateral to fund rue21’s day-to-day business operations through the completion of the sale process,

The advisors