Dive Brief:

• Big and tall men's apparel retailer Destination XL Group has a new $17.5 million term loan facility with private lender Pathlight Capital as the agent.
• The capital infusion will be used to refinance existing debt and provide liquidity for working capital needs, according to a press release. The loan matures in 2026. 
• It comes at a time of distress for the retailer, which S&P Global Market Intelligence has listed as among the most vulnerable publicly traded retailers. As of March 15, before the loan was announced, Destination XL had a 19.1% chance of default over the next year and a 24.4% chance over the next two years.

Dive Insight:

Apparel has been among the hardest hit sectors over the course of the pandemic. Traffic declines at stores and reduced spending on clothes by consumers who are working from home and avoiding social events has put massive financial pressure on many apparel retailers, many of which were under strain even before COVID-19 hit the U.S. 

Last year's bankruptcy class included numerous apparel sellers, including Tailored Brands, Brooks Brothers, Ascena Retail Group, J. Crew, Lucky Brand and others.

Destination XL struggled along with its peers. The retailer's sales fell by nearly a third year over year in 2020. Even by the fourth quarter, the challenges continued, with sales down 23.7%. The company posted negative cash flow from its operations over the year and a net loss of $64.5 million, more than eight times larger than 2019's loss. At the same time, Destination XL's online sales increased 38.6% last year. 

"One of our greatest challenges this past year has been store traffic," CEO Harvey Kanter told analysts in a March conference call. "We have talked to our customers this year and the common theme we kept hearing was, I love your store but I really don't have anywhere to go and I am staying home. I don't need anything from you right now."

That created financial stress on the company. To manage it, the company has had "a relentless focus on preserving liquidity," Kanter said in the company's Q4 earnings release. "We pivoted our assortment, negotiated relief in occupancy costs, and restructured our operating expenses to achieve greater operating leverage as we head into fiscal 2021."

Even with those efforts, Destination XL faced a serious risk of default or bankruptcy. S&P has included the retailer on its most vulnerable retailers list regularly since August, with its default risk ticking up since then. Retail Dive also listed it among the retailers most at risk of filing for bankruptcy in October, based on data from CreditRiskMonitor. 

Pathlight's loan may keep Destination XL out of bankruptcy court, at least for now. The company said for the year ahead it is focused on digital growth, marketing engagement initiatives, more work-from-home and casual clothing in its assortment, possible store reductions and debt retirement.  

Kanter told analysts that there is reason for optimism, with comparable sales declines shrinking in size in recent months and leveling out compared to 2019 for a stretch in March, which at least anecdotally could be related to customers receiving vaccines. In turn, that is changing how customers shop and what they buy. 

"For the first time in a long time, when they have come in, we have seen a greater level of fashion selling and from our older more affluent customer a heightened spending level," Kanter said. "It appears to be coming back quickly but time will tell."