By Phil Wahba
April 7, 2016

Pacific Sunwear has filed for bankruptcy protection, suffocating under the weight of high rent and a large debt load.

The teen retailer, known for its surf- and other beachwear, said on Thursday morning that private equity firm Golden Gate will convert 65% of PacSun’s debt in exchange for equity and inject at least another $20 million in capital.

The company also landed $100 million in bankruptcy financing from Wells Fargo and said this Chapter 11 filing would not affect its operations or ability to pay vendors.

Pacific Sun listed sportswear maker Nike (NKE) and mall operator Simon Property Group (SPG) among its top creditors in its filing with federal bankruptcy court in Delaware.

“We plan to solve the structural issues that operationally we could not fix on our own,” Pacific Sun CEO Gary Schoenfeld said in a statement.

Those issues would be high occupancy costs, which are the product of a large store fleet expansion made just as the Great Recession kicked in and rents were high; and $90 million in long term debt coming due this year, a crippling amount for a company with $800.9 million in annual sales last year.

 

 

PacSun operates 600 stores, and while the company provided no details, closings are likely to take place eventually, and would most probably happen around the back-to-school period or after the holiday season.

The company is only the latest struggling retailer to file for bankruptcy after being hurt by shifting consumer behavior and aggressive store expansion. American Apparel, Quicksilver, Wet Seal, and The Sports Authority have also sought to reorganize their finances in that way.

PacSun’s comparable sales fell 2.5% last year, certainly not a dramatic drop compared to some peers and mitigated by a small increase in the holiday quarter. Still, PacSun, the go-to store for years for California cool, hurt itself in recent years by focusing more on streetwear.

This is not Golden Gate’s first such deal. The $15 billion buyout firm bought Eddie Bauer out of bankrupcty in 2009 for $286 million, then almost sold it for $875 million five years later in a deal that ultimately didn’t go through.

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