Why lenders still love retail, bankruptcies and all

March 9, 2020Media Mention
Retail Dive

In 2019, Barneys New York faced a familiar set of problems for department stores. It had been hit by price wars, e-commerce penetration, declining customer traffic and sales, and increasing rents. Many of its stores were unprofitable, and others were falling short of projections.

By June, revenue was down $34 million year over year, the retailer’s restructuring officer said later in court papers. In response to the sales skid, the lenders behind Barneys’ asset-based credit facility reduced the amount the retailer could borrow by $5 million. The move was meant to protect the lenders from losses. It also suddenly downsized Barneys’ operating funds.

Keith Patrick Banner, a bankruptcy attorney with Greenberg Glusker, says in the worst scenarios, retailers he works with can end up in bankruptcy or a loan workout, in which the parties renegotiate the terms or restructure the debt. “The ABL trap kind of leads them to that point, unfortunately, because they keep buying inventory, because they have to — it’s just a matter of necessity,” he said. “In order to borrow, you have to have inventory to borrow against. You see this time after time, they just keep buying inventory even though it’s absolutely against their interest.”