5 Private Equity Owned Retailers to Watch for Bankruptcy

Private Equity.  Words that give chills to suppliers and landlords.

They buy a retailer, load it with debt, strip the assets, and force bankruptcy.  Sound familiar? We have read it and said it, on multiple occasions.

However, is Private Equity the cause?  According to Harvard Business Review, PE buying “opportunity most often arises when a business hasn’t been aggressively managed and is under performing.” In other words, already troubled retailers are rescued by Private Equity.  It’s not all negative.  PE backed distressed exits decreased by 40% in 2017.  Regardless, the high profile of PE backed retail bankruptcies makes the frequency seem more common.

Every Private Equity Company is Different

Some protect investments, by any means possible. Other Private Equity companies have a history of letting a portfolio retailer fail the moment it makes economical sense.  They have no room for emotion here. Watch the track record of behavior.

As a supplier or landlord, understanding a Private Equity company’s history is as important as understanding the retailer’s financial strength.

A retailer owned by a PE company, generally creates a credit negative situation.  However, a retailer owned by a PE company with a poor track record creates a credit time bomb.

Retailers to Watch

We have developed a list of at risk retailers based on methodology.  First, we identified Private Equity companies with a track record of distressed exits. Second, we cross reference high risk retailers currently within the portfolio.

Here is a short-list of who to watch.  Contact us to evaluate a Receivable Put Option on any of the names below.

PetsMart

  • Credit Rating: S&P corporate rating of CCC.
  • PE Details: BC Partners; shocked the market by letting Phones 4U go bankrupt in 2014. This caught suppliers and credit insurers off guard. Reports also say that BC Partners walked away with 18m GBP profit due to the bankruptcy.
  • Company Details:  In June there were reports PetsMart was working with advisors to urgently refinance debt.

J. Crew

  • Credit Rating: S&P corporate rating of CCC+
  • PE Details: Leonard Green;  well known for the rather surprising bankruptcy of their portfolio company Sports Authority. More recently has been David’s Bridal.
  • Company Details: J. Crew expanded and attempted upscale as consumers chaged. The result: Declining sales, the departure of a longtime CEO and a $2 billion debt problem. Last June, J. Crew announced it had some relief in the form of a debt exchange.

Jo-Ann Stores

  • Credit Rating: S&P corporate rating of B.
  • PE Details: Leonard Green;  well known for the rather surprising bankruptcy of their portfolio company Sports Authority. More recently has been David’s Bridal.
  • Company Details:  Despite having some positive developments as of late, Jo-Ann stores should be closely watched, given their challenging market and the PE company’s history.

The Fresh Market

  • Credit Rating: S&P corporate rating of CCC.
  • PE Details: Apollo portfolio companies.  They have had multiple distressed exits of their retail companies, including Linens & Things and more recently Claire’s.
  • Company Details: With high debt loads, high competition, and low amounts of available cash, they were downgraded last October.

Staples

  • Credit Rating: S&P corporate rating of B+.
  • PE Details: Sycamore Partners; Sycamore recently had a bankruptcy of their portfolio retailer Nine West.  Unsecured creditors are looking to raise a law suit which could damage their business and create a new trend in PE distressed exits.
  • Company Details: Recently acquired by Sycamore Partners, Staples is certainly a credit to watch closely.

And…The Worst?

Based on performance, trends are negative for Sun Capital as a private equity company. They have a staggering track record of letting portfolio companies fail; including UK based retailer American Golf Discount, The Limited, Edwin Watts, Wickes Furniture, Musicland, Friendly’s, Marsh Supermarkets, Real Mex, and Jevic Holding.

Recently, their portfolio retailer Shopko announced a bankruptcy evaluation.

Summary

Private Equity has a reputation for letting portfolio companies fizzle out, but companies acquired by the PE market are already struggling.  Instead of a broad labeling, pay close attention to the history of the specific Private Equity company.  Do they stick with their investments for the long run, or do they look for the exit when times are tough?

About Us: Swift Credit Risk is the market leader in Receivable Put Options designed to protect receivables or tenant rent flow from the bankruptcy.  We are your consultant to simplify the process and source the lowest cost in the market.  Contact us if we can be of assistance as you evaluate a Receivable Put.

4 thoughts on “5 Private Equity Owned Retailers to Watch for Bankruptcy”

  1. I’m not positive the place you’re getting your info, but great topic.
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    • Thank you for taking the time to read and comment. The information was pulled the hard way. Mapping out all retail bankruptcies, tracking PE ownership, and then looking for distressed companies in the those same PE companies current portfolio.

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