Dive Brief:
- Women's apparel seller J. Jill forged an agreement with major lenders that allows it to avoid Chapter 11 bankruptcy, the company said in a press release Friday.
- Lenders representing nearly 98% of J. Jill's term loan agreed to an out-of-court transaction that the company said would add liquidity and financial flexibility. The deal is expected to close around Sept 30.
- Under the deal, J. Jill gets an extended maturity on the applicable part of its term loan, to May 2024, while also receiving a covenant "holiday" through the fourth quarter of 2021 and $15 million in a junior term loan facility.
Dive Insight:
J. Jill's deal with lenders follows months of background talks that started with a breach of its current loan, a forbearance agreement, and multiple deadline extensions. Just two weeks ago, the company signaled that a bankruptcy was possible if it didn't win the consent necessary from its lender base.
Sparking all of it was the company's initial disclosure of deep financial distress, in the form of a "going concern" warning — language in its regulatory filings that it might not be able to survive over the next 12 months. Its going concern warning represented a violation of its loan terms, prompting the forbearance agreement with lenders.
J. Jill was by no means alone in making that disclosure. The spring and summer saw a rash of them among apparel and other legacy retailers. Some of them, including RTW Retailwinds and Stein Mart, among others, went on to file for Chapter 11 and move to liquidate their footprints.
Those retailers, and many others, were thrown into financial turmoil from the COVID-19-related store closures, which made a crater in their revenue and profits for the year. Many of those companies with the least financial cushion and wiggle room were forced into bankruptcy. Others, though, have been able to cut deals out of court to allow them to avoid bankruptcy. Along with J. Jill, Guitar Center, GameStop, Party City and others have announced deals to free up liquidity and/or buy time on payments.
As talks progressed, J. Jill moved to close nearly a dozen stores and, in its quarterly reports, showed the toll pandemic disruption had taken on its business. In the second quarter, even after others had showed gains and the beginnings of a recovery with stores reopening, J. Jill's sales were still down by 50% year over year.
An out-of-court deal can be seen as a vote of confidence from key stakeholders. CEO Jim Scully said earlier this month that J. Jill was "buoyed by a strong direct business and a loyal customer base," and that the proposed transaction would "enable our company to emerge from this challenging stretch in a position of strength."
