rue21 enters into forbearance due to interest and amortization payment misses

by Reshmi Basu, Danielle Randall-Saba, and Alexander Gladstone

rue21 is operating under a forbearance after disclosing it will not be making timely amortization and interest payments due to holders of it its USD 534m Libor+ 462.5bps (1% floor) TLB due 2020, according to three sources familiar with the situation.

The fast fashion retailer is grappling with an earnings downturn amid a slew of negative comp store sales. As such, the company is looking to place additional liquidity in the form of a USD 25m-USD 50m FILO backed by intellectual property.

rue21

Liquidity has indeed become a point of concern for the company, especially as some factoring firms have started to reduce exposure by electing not to approve new shipments.

Last week, rue21 released six years of earnings projections, guiding to a sharp EBITDA drop for FY16, followed by a steady ramp-up in the subsequent years running through 2021.

For FY16, the retailer lists preliminary EBITDA results of USD 54m, down 49% from USD 105m in FY15, the sources continued. For FY17, management pegs EBITDA up at USD 63m, rising exponentially over the following four years.

The latest disclosure marks a volatile period for the retailer. Last month, JPMorgan stepped down as the administrative agent for rue21’s term loan, with Wilmington Savings Fund Society (WSFS) assuming the role.

The retailer’s USD 239m 9% unsecured bond due 2021 last changed hands at 13 on 22 March, according to MarketAxess. Its USD 534m L+ 462.5bps (1% floor) TLB due 2020 was quoted 18/21, according to Markit. The loan is now quoted 15/20, according to a desk analyst.

The company is working with Rothschild as a financial advisor and Kirkland & Ellis as legal counsel. For their part, a group of first lien lenders has coalesced with Jones Day as legal counsel and PJT Partners as financial advisor. Meanwhile, a group of crossholders in rue21’s loans and unsecured bonds is working with Milbank.

Sponsor Apax declined to comment. Messages left with the company were not returned.

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