Dive Brief:

• David's Bridal has been actively negotiating with its lenders over proposals to restructure its debt load to reduce leverage on the wedding apparel retailer, according to an Oct. 22 report from Reorg emailed to Retail Dive. As of Friday, four days after the retailer skipped a debt payment, two proposals were floating, one from the company and a counterproposal from an ad hoc group of term loan lenders, according to Reorg.
• While the proposals differ on interest rates and terms, both include a debt-for-equity swap through an $80 million rights offering, a new $80 million loan and repayment on $80 million of an existing term loan from the rights offering, Reorg reported. Reorg Senior Reporter Chelsea Frankel told Retail Dive in an interview that David's Bridal's three main creditor constituencies in the negotiations are Oaktree Capital, a lender and majority noteholder (and a feisty participant in the Claire's Stores bankruptcy); Solace Capital partners, another noteholder; and a lender group that includes several funds.
• The news service also reported that David's Bridal disclosed to creditors that its third quarter EBITDA (earnings before interest, taxes, depreciation and amortization) fell by nearly one third year over year, to $13.4 million, while its comparable-store sales fell 6.5%. The company expects positive comps of 1.8% for 2018 and a 5% rise in comps in 2019, according to Reorg.

Dive Insight:

In a past statement to Retail Dive, David's Bridal described as "strategic" its decision not to make a payment on $270 million in debt due Oct. 15. The missed payment opened up a 30-day grace period before the retailer fully goes into default.

By the retailer's own account as well as Reorg's, David's Bridal is using the grace period to try to negotiate a deal with creditors. "Our financial outlook is strong and we have ample liquidity to meet our key business objectives today and in the future," a David's Bridal spokesperson told Retail Dive in a statement last week, adding that talks with lenders "are continuing in good faith and have been constructive​" and are aimed at reaching "a mutually agreed upon resolution."

(The company did not respond to Retail Dive's request for comment on details of the current state of negotiations or the Reorg report.)

As many retail bankruptcies as there have been both last year and this year, there have been numerous debt deals as well that have kept those companies out of bankruptcy court, at least for the time being. Among them are J. Crew, Charlotte Russe and 99 Cents Only.

Motivation by creditors to do those deals depend heavily on their interests and what they see in the company. If David's Bridal's secured lenders saw more value in its assets, its parts, rather than its sum as an operating company, they may well choose to let the company fail. But without major real estate holdings or other salable assets, the retailer may be of more use to its lenders as a going concern.

And sometimes debt deals are only short-term fixes. Without a fix to the underlying business and its competitive position, a debt swap just kicks the can. J. Crew and 99 Cents Only, among other examples, still face a high risk of bankruptcy, according to data from CreditRiskMonitor. And Sears, after freeing up some breathing room with a debt deal this year, still ended up in Chapter 11. 

In the case of David's Bridal — owned by private equity firms Clayton, Dubilier & Rice and Leonard Green & Partners — many analysts see a specialty retailer beset by problems in its sector, capital structure and of the company's own making, including a sluggish start to making needed digital investments.