Pacific Sunwear of California Inc. filed for bankruptcy protection after years of management blunders that left the youth-oriented clothing chain unable to compete successfully in an increasingly cutthroat retail environment.
The company said it will use its time in court to find a buyer or be taken over by affiliates of the private equity firm Golden Gate Capital, its senior lender.
CEO Gary H. Schoenfeld blamed past managers for a series of mistakes — including two failed expansion plans — that made it harder for the company to keep up with increased competition and the changing tastes in youth-oriented fashions.
“The company’s expansion to nearly 1,000 stores created too large a store footprint with numerous underperforming stores and above-market occupancy costs,” Schoenfeld said in court papers explaining the bankruptcy. In the late 1990s, Pacific Sunwear began opening stores based on urban fashions in addition to its surf-wear shops. The experiment failed and by 2008 the company closed 225 stores. It now has fewer than 600.
PacSun has 12 Colorado locations.
The company’s deal with lenders should allow it to cut debt and bring in $20 million to help it exit bankruptcy, either in the form of equity bought by investors or new debt. Schoenfeld said the company plans to win court approval of its plan within 120 days.
Pacific has about $299 million in assets and owes creditors about $305 million, according to court papers filed in Wilmington, Del. Under the plan senior lenders Wells Fargo, which is owed $31 million, and Golden Gate, owed about $81 million, will be repaid in full. Suppliers will also be repaid in full under the plan, with half their money coming once the company exits bankruptcy and the rest by Dec. 15.
Under the proposed reorganization, Pacific Sunwear would solicit bids for the company. If any offer is high enough to fully pay off senior lenders, the company would sell itself instead of moving ahead with the debt-for-equity deal it worked out before filing for bankruptcy.
The company must also give creditors a chance to vote on the plan. That vote will be taken into consideration by the judge, who will make the final decision.
Wells Fargo has agreed to lend the company as much as $100 million to use while it reorganizes in bankruptcy and to provide a $100 million revolving line of credit.
Without the proposed restructuring deal, might have faced a total shutdown of the surfwear chain, which has struggled to adapt to shifting consumer tastes. The demand for PacSun’s shorts, sneakers, T-shirts and jeans has been in steady decline as younger consumers opt for the trendy and less-expensive apparel sold by chains such as and .
The growth of fast-fashion stores and online merchants has driven storefront and mall-based chains including and Quiksilver Inc. into court-supervised restructurings in the past year. Other specialty retailers, such as Sports Authority Inc., have also sought creditor protection.
Anaheim, Calif.-based PacSun has had losses every year since 2008, while its shares have plunged about 96 percent in the past 12 months. It instituted a cost-cutting program last year that it said would bring about $15 million in savings in 2016.
