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PacSun to close 175-200 stores, lands new financing

By Press Releases
December 07, 2011 1:27 PM

 

Editor's note: We have more details on PacSun's real estate restructuring, store closures, Q3 earnings and Q4 guidance from the company's earnings call today in our Executive Edition article.

 

Here is the official press release about store closures and new financing from a private equity firm and from Wells Fargo Capital Finance.

 

Press Release:

 

ANAHEIM, Calif., Dec. 7, 2011 (GLOBE NEWSWIRE) -- Pacific Sunwear of California, Inc. (Nasdaq:PSUN - News) announced today the completion of extensive negotiations with landlords that will result in the closure of approximately 175-200 underperforming stores within the next 14 months.

 

The Company also announced the completion of a five-year, $100 million revolving credit facility with Wells Fargo Capital Finance and a five-year, $60 million senior secured term loan funded by Golden Gate Capital, a leading private equity firm with extensive experience in the retail sector.

 

"The combination of these transactions greatly enhances our financial and operating position, and is another critical step forward as we work to re-establish PacSun as a leading specialty retailer across the U.S.," said Gary H. Schoenfeld, President and Chief Executive Officer.

 

"With the support from all of our major landlords, we can now focus on our targeted base of 550-600 better performing stores and our enhanced merchandising and marketing strategies for becoming the preferred destination among teens and young adults for great style and great brands."

 

Real Estate Restructuring

The agreements reached with the Company's landlords include the buyout of approximately 75 leases at a cost of approximately $13 million, short-term extensions for approximately 50 better performing stores, and termination upon lease expiration of approximately 115 stores by the end of fiscal 2012. A portion of the proceeds from the Golden Gate Capital senior secured term loan will be utilized to fund the lease buyout payments.

 

"For the prior twelve months through the end of the third quarter, the stores that we will be closing had average sales of $0.6 million and a same-store sales rate of -9%. Conversely, average sales for the remainder of our stores were approximately $1.1 million with a same-store sales rate of -1% which represents a much healthier base to move forward with," Mr. Schoenfeld said.

 

New Financings

The Company entered into a new five year $100 million revolving credit facility with Wells Fargo Capital Finance, replacing the previous revolving credit facility which would have expired in April, 2013. The Wells Fargo credit facility is secured primarily by a first priority interest in inventory and other excess working capital, and bears interest at the rate of 150-200 basis points over LIBOR.

 

Golden Gate's senior secured term loan is secured by a second lien on the Company's inventory and receivables, and a first lien in the Company's remaining assets. In addition to interest and fees payable on the loan, the Company issued convertible preferred stock to an affiliate of Golden Gate which gives it the right to purchase up to 19.9% of the Company's common stock (16.7% on a fully-diluted basis) at an exercise price of $1.75, a 33% premium over the closing price of the Company's common stock on December 6, 2011.

 

Golden Gate also received the right to appoint two members to PacSun's Board of Directors. Joshua Olshansky, a Managing Director and head of Golden Gate's retail group, and Neale Attenborough, Golden Gate's retail group Operating Partner, were appointed to fill the two current vacancies on PacSun's Board.

 

Golden Gate is one of the most active private equity investors in the retail and restaurants sector and has extensive experience working with brands in transition. Some of the firm's portfolio companies include Express, J.Jill, Eddie Bauer, Zales and California Pizza Kitchen.

 

"Golden Gate's deep retail experience, strong track record of working with great brands, and highly flexible investment approach make them an attractive partner for PacSun," Mr. Schoenfeld said. "We look forward to working closely with them along with Wells Fargo which has been a banking partner for several years."

 

Mr. Olshansky stated, "Taken in the aggregate, these actions will immediately strengthen the Company by improving its liquidity, profitability and the quality of its real estate portfolio. The initiatives announced today give the Company and its new management team time and significant additional resources to execute on and accelerate its turnaround plan."

 

On page 2: Financial Results for Third Fiscal Quarter of 2011

 

 

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