Dive Brief:

• A group of Bon-Ton Stores bondholders have agreed, for now, not to exercise their rights against the retailer after the grace period ended on a $14 million interest payment that Bon-Ton failed to make in December, according to a Bon-Ton press release.
• The forbearance agreement effectively puts off default on the missed payment. The agreement lasts until Jan. 26, after which it can be automatically extended until Feb. 4 with the bondholders' consent. Bon-Ton said in the release it is "engaged in ongoing discussions with its debt holders in an effort to strengthen its capital structure to support the business."
• Multiple media outlets have reported that Bon-Ton has been in talks with its bondholders over a possible reorganization or debt restructuring. Bloomberg reported last week that some creditors were pressing the department store retailer to enter bankruptcy, and The Wall Street Journal called a bankruptcy filing "imminent" in a headline.

Dive Insight:

Bon-Ton is among the most fragile players in a sector under siege, and its particular financial troubles are stark.

For now, the retailer has bought itself more time as it negotiates with lenders over a possible bankruptcy filing or debt restructuring. If the retailer and its lenders are talking bankruptcy, specifically, right now, they could use the additional time from the forbearance agreement to iron out the details of a reorganization.

As we’ve seen from the rash of retail Chapter 11s filed last year, forming a detailed plan, backed by lenders and other stakeholders, can make the difference between a successful reorganization and liquidation (which is the more common outcome for retail bankruptcies). Payless, Gymboree, rue21 and True Religion, among others, carried out plans in bankruptcy to shed stores, costs and debt — plans that were mostly ironed out ahead of the filing.

The holidays had no financial lifeline for Bon-Ton, which runs the Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s and Younkers nameplates in 24 states in the Northeast, Midwest and upper Great Plains. The retailer said in January that comparable store sales fell by 2.9% during the holiday period. Total sales also dropped, to $752.1 million, down more than 4% from the year-ago period. Bon Ton’s sales dropped as other department store retailers — including Kohl's, J.C. Penney and Macy's — reported much-needed sales increases for November and December.

Bon-Ton has been trying to downsize amid falling sales. It said in November that it would close 40 stores in 2018. But its financial problems run deep. Morgan Stanley analysts, led by Kimberly Greenberger, wrote in a Dec. 21 note that the retailer's deteriorating cash flow combined with its high debt levels have "led investors to question Bon-Ton's long term viability."

Concerns and rumors about Bon-Ton's financial health have been hanging over the retailer for months. Earlier this year, though, some Bon-Ton suppliers reportedly pressed for tighter terms on shipments. Such supplier troubles echo the lead-up to Toys R Us' Chapter 11 filing, as well as that of many retail bankruptcies, including Gymboree, Charming Charlie and others. Prior to that, media reported the retailer hired AlixPartners for help with its turnaround efforts. 

S&P has listed the company as one of the retailers most at risk of bankruptcy. In a Nov. 17 report, analysts with Fitch Ratings (after leaving Bon-Ton off an expanded "loans of concern" list in October) wrote, "While the company has enough liquidity to support 2017 holiday working capital needs, there is risk of a debt restructuring over the next 12 months."

In May, the retailer shook up the executive ranks, announcing COO William Tracy would replace previous CEO Kathryn Bufano. Adding to the turnover, Bon-Ton's chief financial officer recently left for Pier 1. Replacing Nancy Walsh in the CFO slot is Michael Culhane, who has served in executive roles at several retailers.

Bon-Ton's top-line sales have been falling since 2007, and the retailer hasn't posted a positive profit since 2010, according to regulatory filings. Comparable sales for Bon-Ton have been negative for more than two years.

"Bon Ton is one of the remaining regional department store chains, but one of the weakest among them," retail analyst Nick Egelanian, president of retail development consultants SiteWorks International, told Retail Dive in an email. "It would not be surprising at all to see the company enter bankruptcy protection and even eventually elect to liquidate."

While Bon-Ton's fragility is pulling it down, the department store model, the emporium that sells a wide variety of merchandise with the support of stellar customer service, has deteriorated in general. 

"As we continue down the decades long process of department store 'deconstruction,' the full-line department store business model continues to break down and more and more damage is being inflicted on the already vastly reduced industry," Egelanian said. "I would be very surprised if this is the last department store failure we see this year."