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Teen retailer Pacific Sunwear files for bankruptcy

By Yashaswini Swamynathan and Tracy Rucinski
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Chief Executive Officer and President of Pacific Sunwear of California Inc. Gary H. Schoenfeld and his son speak on stage during WE Day California in Inglewood

Chief Executive Officer and President of Pacific Sunwear (PacSun) of California Inc. Gary H. Schoenfeld (L) and his son speak on stage during WE Day California in Inglewood, California, April 7, 2016. REUTERS/Danny Moloshok

By Yashaswini Swamynathan and Tracy Rucinski

(Reuters) - Teen apparel retailer Pacific Sunwear of California Inc <PSUN.O> filed for Chapter 11 bankruptcy protection on Thursday, succumbing to mounting losses and intense competition from fast-fashion retailers and online rivals.

The company, which joins recent U.S. Chapter 11 filings by surfwear brand Quicksilver and teen retailer American Apparel, plans to be taken private by investment firm Golden Gate once it emerges from bankruptcy, it said in a statement on Thursday.

Its shares fell to a record low of 5 cents on Thursday and were still down 42 percent at 5.5 cents in late afternoon.

Citing "significant and unusual trading," lawyers for the retailer asked a judge to restrict trading on Thursday due to concerns that a significant change in ownership could impair its ability to use tax benefits on operating losses down the road.

Founded in 1982 as a surf shop, PacSun has posted an annual net loss since the financial crisis hit in 2008.

It had about $342.7 million of net operating losses as of Jan. 31, which can be used to reduce tax liabilities if it becomes profitable again.

"The company believes that this is an extremely valuable asset of the bankruptcy estate," Joseph Barry of Young Conaway Stargatt & Taylor said at an emergency hearing in Delaware on Thursday.

U.S. Bankruptcy Judge Laurie Silverstein approved the interim motion and holders of PacSun stock will be notified.

Pacific Sunwear said Golden Gate plans to convert more than 65 percent of its debt into equity and provide a minimum of $20 million in additional capital. Golden Gate had lent PacSun about $60 million in 2011.

The company also said it had a debtor-in-possession credit agreement of $100 million with Wells Fargo Bank.

The Anaheim, California-based retailer listed assets in the range of $50 million to $100 million, and liabilities of between $100 million and $500 million, according to its court filing.

It named Nike Inc <NKE.N> and mall operator Simon Property Group Inc <SPG.N> among its creditors, while top investors include investment firm GI2 Ltd with a 28.6 percent stake and Adage Capital Management LP with a 14.1 percent stake.

PacSun said it would continue to operate all of its 600 stores and does not expect the bankruptcy filing to have an immediate impact on employees.

Rival Aeropostale Inc <ARO.N> said in March it was exploring strategic alternatives, including a sale, an option that sector experts said PacSun may also need to contemplate.


(Reporting by Yashaswini Swamynathan and Ramkumar Iyer in Bengaluru and Tracy Rucinski in Chicago; Editing by Anupama Dwivedi and Matthew Lewis)