Rue21 Inc is preparing to file for bankruptcy as early as this month, according to people familiar with the matter, as the U.S. teen fashion retailer faces a big debt pile and declining foot traffic.
The chain, which sells budget-priced clothing and accessories at about 1,100 stores in malls, strip centers and outlet centers across the United States, is struggling to repay a debt load of nearly $1 billion.
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Much of that debt stems from a $1.1 billion leveraged buyout by private equity firm Apax Partners LLP in 2013.
Rue21 has engaged real estate advisers to help it negotiate with landlords, and an operational restructuring adviser for assistance in preparing for bankruptcy, the people said this week. The company is already working with restructuring bankers from firm Rothschild & Co, they added.
The sources requested anonymity because they are not authorized to discuss the matter with the media.
Rothschild and Apax declined to comment.
Facing default on some of its debt, Rue21 reached forbearance agreements with lenders that extend through late April, the Warrendale, Pennsylvania-based company said in a statement on Thursday.
Asked to comment on its bankruptcy plans, company spokesperson Todd Fogarty said in an email: "Rue21 has been working to improve its operations and enhance its liquidity position and has been actively engaged with its lenders and bondholders to explore the best path forward."
Bloomberg News first reported Rue21's bankruptcy plans on Thursday.
Rue21 would be the latest in a string of retailers seeking bankruptcy protection as shoppers shift their spending online.
This week, Payless ShoeSource, a retailer of discount shoes, filed for bankruptcy with a plan to immediately close 400 of its over 4,000 stores worldwide.
High-end department store chain Neiman Marcus Group LLC hired investment bank Lazard Ltd to explore ways to slash its $4.9 billion in debt, Reuters reported.
Like Rue21, Payless and Neiman Marcus have been hurt by debtloads created in private equity buyouts, preventing them from being nimble and adjusting to the changing retail environment.
Rue21 has also been hit by competitors like Zara, Forever 21 and H & M Hennes & Mauritz AM which offer similarly priced apparel.
(Reporting by Jessica DiNapoli in New York; Editing by Richard Chang)