Gymboree Bankruptcy Raises Fitch U.S. Retail Loan Default Rate To 2.7%

Gymboree's Chapter 11 bankruptcy filing lifts the Fitch U.S. retail sector 12-month loan default rate to 2.7% from 1.7%, the ratings agency said Monday. Gymboree has had a high level of indebtedness since a 2010 leveraged buyout transaction, and the children's retailer faced $1 billion in debt maturities over the next 22 months, as of March 14. Fitch expects Gymboree to emerge from bankruptcy as a smaller company after store closures, but facing competition from companies like Children's Place Inc. and department stores. "Fitch is forecasting the [U.S. retail sector default] rate to rise to 9% by year end 2017, which would include a filing by heavily indebted Sears Holdings Corp. ($2.5 billion of term loans outstanding) that swings the rate by about 4%," the Fitch note said. "Fitch's expectation of increasing retail defaults stems from increased discounter (including off-price and fast-fashion apparel) and online penetration, along with shifts in consumer spending toward services and experiences. These factors have created a highly competitive retail environment and accelerated adverse trends in mall-based shopping." Other retailers on Fitch's list of Loans of Concern or Bonds of Concern are Claire's Stores Inc., Nine West Holdings Inc. and True Religion Apparel Inc. The SPDR S&P Retail ETF is down nearly 7% for the year so far while the S&P 500 index is up 8.4% for the period. See also: J.C. Penney, Gymboree and J. Crew at risk - and it's not all Amazon's fault