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Law360 (July 8, 2020, 11:10 AM EDT) -- Men's suit retailer Brooks Brothers filed for Chapter 11 protection Wednesday in Delaware, saying liquidity and supply chain problems worsened by the COVID-19 pandemic drove it into insolvency.
In initial court filings, the 202-year-old company listed at least $500 million in debts and said it had been experiencing liquidity problems prior to the outbreak of the novel coronavirus. The business restrictions that forced Brooks Brothers to shutter its retail operations for several weeks ate into its revenue and reduced its cash position, leading to the bankruptcy filings, according to the filings.
"These closures and the corresponding disruption to the debtors' supply chain exacerbated issues that the debtors were facing on account of the general downturn in the retail industry in recent years," Chief Restructuring Officer Stephen Marotta said in a first-day declaration. "Further, with businesses closed around the globe, cancellations of formal events, and employees working from home, the demand for formal and professional attire, comprising a large portion of the debtors' business, faced temporary sharp declines."
Beginning with a single store in New York City in 1818, Brooks Brothers has grown into a clothing empire with 424 retail and factory outlet stores and another 1,000 locations operated under franchise and licensing agreements, Marotta said. Its suits have been worn by 40 American presidents, he said.
Already facing economic pressure from changing consumer retail habits, Brooks Brothers began exploring a sale of its assets in 2019, but the COVID-19 outbreak forced it to abandon those efforts, according to the declaration.
"The pandemic forced the debtors and their advisors to reassess the appropriate strategic transaction and refocus their efforts on a restructuring of their businesses through a Chapter 11 filing," Marotta said.
The company said its stores have begun reopening as those restrictions have been lifted, but that it is planning on permanently closing its three U.S. manufacturing facilities that have provided nearly 20% of its merchandise. Since the beginning of the pandemic, Brooks Brothers has permanently closed 51 stores and has only been able to reopen 18 of its 424 company-owned locations, Marotta said.
It has filed a motion seeking permission to pay its critical vendors and suppliers, most of them in Asia and Europe, and said its supply chain was hampered by the difficulties associated with COVID-19 in those regions.
The company is pursuing a rapid sale process in its Chapter 11 case, with a goal of closing on a transaction within 68 days of its petition, the declaration said. To fund its operations and its sale efforts, Brook Brothers has obtained commitments for $75 million in post-petition financing from an affiliate of WHP Global.
Its existing secured debt consists of an asset-based lending facility with $212 million outstanding, a $32.5 million term loan, $13.6 million under an uncommitted facility. Another $7.5 million in mortgage debt rounds out the secured obligations. There is $126.3 million in unsecured note debt along with significant trade debt.
The company has furloughed nearly 3,000 of its 4,500 prepandemic employees worldwide as it implemented store closures and workforce reduction measures in response to the outbreak, according to the court filings. Brooks Brothers is seeking to pay $4.7 million in wages and benefits for its current employees during the Chapter 11 case.
The case has been assigned to U.S. Bankruptcy Judge Christopher S. Sontchi and a first-day hearing is scheduled for 2 p.m. Thursday via phone and video conferencing.
Brooks Brothers is represented by Mark D. Collins and Zachary I. Shapiro of Richards Layton & Finger PA and Garrett A. Fail and David J. Cohen of Weil Gotshal & Manges LLP.
The case is In re: Brooks Brothers Group Inc. et al., case number 20-11785, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Katherine Rautenberg.
Update: This story has been updated with additional information about the filing.
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