When a business is forced to close its doors, defining how to handle the debt it holds is one of the main challenges. While bankruptcy filings provide some debt management standards, agreements with creditors are still important to reach. Claire's Stores, which have several locations in Connecticut, have recently filed for bankruptcy and reached an agreement with creditors to restructure debt of around $1.9 billion.
While the company's CFO remained hopeful about Claires' business model, the decline in mall traffic and growing debt caused the eventual bankruptcy filing. Specifically, the CFO shared in a court affidavit that mall traffic fell 8 percent year-over-year. The company's debt resulted in $183 million per year in interest payments alone, requiring serious action and restructuring.
The company attempted debt management strategies before choosing to file for Chapter 11 bankruptcy. Tactics included a debt exchange in 2016 and a refinanced credit line in 2017, but the cash flow problem continued. Claire's has now agreed to a restructuring plan through a group of creditors, and will continue operating under the Chapter 11 filing as it works out a plan to pay creditors.
This is certainly not the first news story of the year involving debt management, restructuring and bankruptcy among major retailers. As retail continues to shift due to technological and trade changes, business leaders should pay close attention to business models, credit systems and bankruptcy law. Connecticut businesses considering bankruptcy or debt management for their own companies should contact a lawyer in the state to better understand the laws around this decision.
Source: ctpost.com, "Claire's becomes latest retail bankruptcy", Tiffany Kary, Katie Linsell and Emma Orr, March 19, 2018