Dive Brief:

• Tailored Brands is already seeking a $75 million emergency loan from a current lender and its largest equity holder after exiting bankruptcy in December.
• The search for new financing followed "unanticipated declines in its business" in December and early 2021 that raised the risk of default, according to a trustee for a group of unsecured creditors who became equity holders in 7% of the organized company. A default could force Tailored Brands to restructure again or liquidate, the trustee said.
• A Tailored Brands spokesperson said that the company has exceeded forecasts for the past two and a half months. The purpose of the financing, expected to close this week, is to increase the retailer's "working capital buffer and thereby further [ensure] that Company would be positioned to execute its strategic plan through a number of different economic recovery scenarios," the spokesperson said.

Dive Insight:

Bankruptcy reorganizations are meant to give struggling companies a second chance. Sometimes they take, with phenomenal success. The owner of Toys R Us filed for bankruptcy in the mid-1970s, after which the toy retailer became a dominant force in the category for a generation... until its eventual decline and liquidation. 

The journey of Tailored Brands, owner of Men's Wearhouse and Jos. A Bank, from bankruptcy emergence to new financial trouble is whiplash-inducing.

"We are thrilled to emerge from Chapter 11, having gained the financial and operational flexibility we need to support each of our brands in this rapidly evolving retail environment, continue to show up strong for our customers and remain an attractive employer," Tailored Brands CEO Dinesh Lathi said in a press release just three months ago, when the company exited bankruptcy. The executive assured stakeholders that "while addressing our underlying financial challenges precipitated by the unprecedented impact of COVID-19, we continued to strengthen our business and brands."

But, according to the trustee's letter to the equity group, the "severity of declines" in Tailored Brands' performance and "potential defaults" drove the retailer toward a quick deal with Silver Point. Behind drops in sales is the continued fallout in retail from the COVID-19 pandemic.

The trustee said that Tailored Brands has "severely underperformed against the financial projections" that its Chapter 11 reorganization plan was based on. Those projections assumed a "resumption of social gatherings such as proms and weddings as well as the return of office workers towards 2019 (pre-pandemic) levels beginning this spring." 

Tailored Brands and its advisers, who reached out to 31 potential finance providers, concluded the company needed the $75 million bailout by March. The spokesperson for Tailored Brands, however, said that the company has "exceeded the forecasts shared with prospective investors in every week of the past two-and-a-half months." 

Yosef Magid, holder of $6 million in Tailored Brands bonds and an equity holder under the trust, warned that the deal could hurt creditors while accusing Silver Point of "self-dealing" in its proposed loan deal with the retailer and the trustee of exceeding his rights and powers. Magid, who submitted a letter to the federal bankruptcy court and attached a notice from the trustee, described the loan terms as "egregious" for offering a "measly" $3.3 million for the creditors' combined stock. 

However it plays out in court, Tailored Brands serves as a warning to other distressed retailers and recent bankruptcy alums in the apparel sector. The margin for error in apparel has been slim for years now. For retailers and apparel sellers on the margin, it's an endurance contest to stay afloat while waiting for the COVID-19 vaccines to roll out and the world to settle into a new normal.