Payless Shoesource Bankruptcy to Close 400 Stores

Payless, which has more than 4,400 stores in more than 30 countries, has free-standing stores as well as locations in malls, CNN Money noted. It has been owned by two private equity groups since 2012.

Payless was one of 19 retailers Moody's last month had listed as being "distressed," CNN reported.

"Payless' North American entities, as well as two foreign Hong Kong-based entities involved in logistics (CBL) and supply chain (DAL), filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Eastern District of Missouri to facilitate the financial and operational restructuring necessary to strengthen its balance sheet and position the company for long-term success," the company said in a statement on its website Tuesday.

In February, Moody's downgraded Payless's Corporate Family Rating to Caa2 from B3 and Probability of Default to Caa2-PD from B3-PD. Moody's said the company's $520 million first lien term loan due in 2021 and $145 million second lien term loan due 2022 were also downgraded to Caa1 and Caa3, respectively.

"The downgrade reflects weaker than anticipated operating performance resulting in deteriorating credit metrics, as well as heightened risk of a distressed exchange and a weak liquidity profile highlighted by limited availability under the company's (asset-based lending) facility and the potential for negative free cash flow," Moody's Analyst Dan Altieri said.

Payless said in its statement that it intended to use the Chapter 11 process "to implement a comprehensive path forward to meaningfully enhance our growth profile and profitability, positioning us to continue to thrive as a sustainable business in the face of the retail industry's radical, unprecedented transformation."

"Payless has the strong support of its senior lenders for a consensual restructuring through a Plan Support Agreement to reduce debt, materially lower annual cash interest costs, access significant additional capital, and provide a clear path to emergence on an expedited basis," the statement continued.

Macy's, JCPenney, Staples, Sears, Ralph Lauren and Radio Shack have all announced store closures this year, CNN noted.

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