Aeropostale Claims To Be Back After Filing For Chapter 11 Bankruptcy

Unable to search for a potential buyer or improve its struggling business, Aeropostale has finally filed for chapter 11 bankruptcy. ^[1] The retailer plans to come out of the Chapter 11 process after six months with a smaller store base and an improved operating model. The management said that during this period the company would look to shed the extra store base and explore opportunities to renegotiate contracts that have been a burden on its business. Alongside, it would work on resolving the prevailing disputes with its major investor, Sycamore Partners, and look for avenues that can help it regain financial stability, while continuing its search for a buyer. For starters, Aeropostale plans to close another 113 stores in the U.S. and all 41 stores in Canada within a week.

With the Chapter 11 filing, Aeropostale secured a $160 million commitment in debtor-in-possession financing from Crystal Financial LLC. Considering that Aeropostale had a net debt of about $100 million ($140 million debt and $40 million cash) at the end of 2015, the aforementioned amount can go a long way in providing financial liquidity. With regard to its capital lease obligations in excess of $500 million, the immediate closure of 150 stores will bring them down considerably. And the combined effect of both can create a relatively more attractive financial position for the company that may draw in potential buyers’ interest. However, this scenario is highly speculative and there is no certainty that Aeropostale will be able to generate profits in the foreseeable future.

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1. Aeropostale Takes Next Steps In Business Transformation, Aeropostale, May 4 2015 [↩]