Retailers on the Brink of Coronavirus-Induced Bankruptcy

Retailers on the Brink of Coronavirus-Induced Bankruptcy

Major retailer J. Crew has filed for bankruptcy and JC Penney has skipped an interest payment on an outstanding bond, indicating it may be considering declaring bankruptcy soon. Experts say there will likely be more retailer bankruptcy filings to come as credit ratings fall in the wake of the coronavirus pandemic.

Although J. Crew is the first big retailer to file for bankruptcy protection during the COVID-19 pandemic, it’s very likely to be followed by many more well-loved brands. Credit rating firms, Fitch Ratings, Moody’s, and S&P Ratings have downgraded several more companies to B- or lower and flagged them as risky. 

According to Fitch Ratings, this sector is in real trouble and the default rate could rise to 19% by the end of 2020. These defaults on payments could lead more retailers into bankruptcy.

More Retailers on the Brink of Bankruptcy:

JC Penney is in default but is currently in a 30-day grace period. The company will use this time to weigh its options. JCP was already struggling and working on a turnaround plan before the coronavirus pandemic hit. It had already closed many stores across the country.

Its stock is down 79% and its three-year bonds are trading at just 48 cents on the dollar. These bonds mature on July 1, 2023, at which point JC Penney may be gone completely.

Ascena Retail Group owns Ann Taylor, Loft, Lane Bryant, and other women’s business-casual apparel lines. As the shift to remote work eliminates the need for such attire, these types of retailers are taking a hard loss.

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Ascena managed to repurchase some of its debt at below-par pricing, which is considered a soft default. S&P Ratings has given the company a credit rating of CCC-, which is on the brink of default. Its stock is down 83% to date.

Tailored Brands owns Men’s Wearhouse, Jos. A. Bank and men’s formalwear retailers. As with Ascena, as coronavirus pushes most people into remote work, the need for businesswear is alleviated. S&P Ratings has downgraded the company’s credit rating to CCC+.

Tailored Brands has a huge problem looming as well. It has $174 million in bonds that mature in 2022. If these bonds can’t be refinanced, the company’s $880 million term loan will come due early. The brand’s stock is down 64% for the year. All of these challenges will be difficult for the company to overcome in a very limited time frame.

Lands End is in trouble but is in better shape than the others. S&P Ratings has lowered the company’s credit rating to B-. Lands End was able to increase the size of an asset-backed loan to tide it over but has only 18 months to repay $385 million in debt. The company’s stock is down 55% for the year.

Neiman Marcus is reportedly considering filing bankruptcy to deal with its staggering $4.8 billion debt. S&P Ratings downgraded the company to CCC- last month. All of the company’s stores have closed, but the retailer is still operating online. Its 1 1/2 year bonds are currently trading at 56 cents on the dollar.