Wednesday, April 5, 2017


Payless ShoeSource Outlines Plan to Survive Bankruptcy

Shoe retailer to quickly close some 400 stores and has financing deals in place

Payless ShoeSource filed for chapter 11 bankruptcy protection Tuesday.
Payless ShoeSource filed for chapter 11 bankruptcy protection Tuesday. Photo: Richard B. Levine/Zuma Press
Payless ShoeSource Inc., which filed for chapter 11 protection Tuesday, has said that it differs from many other recent bankrupty-seeking retailers in that it plans to survive its restructuring.
The country’s largest footwear chain plans to quickly close some 400 underperforming stores in response to the growing dominance of e-commerce, a trend that has prompted other retailers to file bankruptcy and ultimately close their doors. But Payless said in new court filings that the debt-cutting and financing deals it reached this week with lenders, including Blackstone Group ’s GSO Capital Partners, will help it emerge from chapter 11 as a still-operating business.
“Unlike many retailers with challenged business models that have liquidated through the bankruptcy process in recent months, Payless’ business continues to be highly relevant with a deeply loyal customer base,” Chief Financial Officer Michael Schwindle said in court papers filed Wednesday.
Declining sales brought on by the rise of Inc. and other online retailers have left some longtime brick-and-mortar chains unable to deal with mounting debt burdens. Chapter 11 filings haven’t always led investors to keep stores open, resulting in liquidations of chains like American Apparel, The Limited and Wet Seal.
In Wednesday’s court filings, Payless cited consumers’ shift to online shopping as a reason for its need to restructure roughly $840 million in debt. It also said it had a tough 2015, when “antiquated systems and processes” enabled it to buy too much inventory. And shipments were delayed by the West Coast port slowdown during a labor dispute that year, preventing the Topeka, Kan.-based company from stocking its shelves during the crucial Easter selling season.
By the time delayed inventory finally arrived, Payless said it was late in the season and it had to sell the shoes at a deep discount. Ultimately, Mr. Schwindle said “millions of pairs of shoes were sold below cost in order to realign inventory and product mix.”
Sales fell, and Payless had to cut its advertising and capital expenditures. Efforts to improve its website were delayed by the retailer’s cash crunch. In the months leading up to its bankruptcy filing, the retailer moved to cut costs, Mr. Schwindle said, by closing stores, eliminating about 145 corporate and support jobs and seeking rent concessions from store landlords.
Payless and top lenders began restructuring talks in February, Mr. Schwindle said, ultimately reaching a deal to slash the retailer’s $838 million debt load to about $469 million as well as to close additional stores.
According to court papers filed Wednesday, lenders holding nearly two-thirds of senior and junior loan debt—including funds managed by Alden Global Capital, Axar Capital Management, Credit Suisse Asset Management, GSO Capital Partners and Octagon Credit Investors—support the restructuring terms. Senior lenders that have signed onto the deal are represented by lawyers from King & Spalding LLP.
The restructuring terms call for existing lenders to provide $385 million in bankruptcy financing, some of which is new money but some of which will refinance existing debt.
According to court papers, existing debt includes $187 million owed to lenders behind an asset-backed revolving loan, led by Wells Fargo Bank , as well as $506 million owed to senior lenders led by Cortland Products Corp. and $145 million to junior lenders led by Morgan Stanley Senior Funding Inc.
Payless will ask a St. Louis bankruptcy judge to let it start drawing on its $385 million loan, as well as making other standard requests designed to keep it operating during chapter 11, at a hearing set for Wednesday afternoon.
Founded in 1956, Payless has more than 2,600 stores in the U.S., making it by far the largest footwear-specific retailer in the nation, according to industry trade group the Footwear Distributors & Retailers of America. In all, Payless employs some 22,000 people at approximately 4,400 stores in more than 30 countries.
Write to Jacqueline Palank at