Turnaround Talk: Men's Wearhouse Devises Tailored Brands Holding Company to Protect Assets in Potential Bankruptcy
The retailer has suffered financially since its 2014 acquisition of Jos. A. Bank
Men’s Wearhouse has created a new holding company, but it remains to be seen if the move will make investors forget about the retailer’s steady stock decline and profit losses in the wake of purchasing Jos. A. Bank in 2014.
The company is now trading as Tailored Brands (NYSE: TLRD). Under the new structure, Men’s Wearhouse’s shareholders have moved to the holding company, retaining the same number of shares and ownership percentage in Tailored Brands.
“We believe the holding company structure will allow us to support, nurture and augment our family of brands as we further leverage our shared services platform,” says CEO Doug Ewert.
In the event that the creation of the new holding company does not serve its purpose and Men’s Wearhouse ultimately files for bankruptcy relief, the move may afford the company more flexibility. Holding companies are also viewed as asset protection strategies that can help limit liability risks. If Men’s Wearhouse were to file Chapter 11, the new structure could allow for the retailer to restructure debt through a pre-packaged bankruptcy filing, without putting its operating companies into bankruptcy. Alternatively, under the holding company structure, Men’s Wearhouse could place just one of the retail chains in bankruptcy, while keeping the stronger of the two out of the crossfire.
If Men’s Wearhouse does file, it would add to the growing list of retailer peers American Apparel (NYSE: APP), Abercrombie & Fitch Co. (NYSE: ANF), American Eagle Outfitters (NYSE: AEO), Sears Holdings Corp. (NYSE: SRH) and Wet Seal, all of which have made attempts to restructure. As previously reported, Mergers & Acquisitions expects to see a wave of bankruptcy filings in the retail sector.
Men’s Wearhouse has faced financial hurdles, stemming from the $1.8 billion purchase of men’s specialty apparel retailer Jos. A. Bank of Hampstead, Maryland, completed in June 2014. The transaction was funded with a $1.1 billion term loan facility, $600 million in senior unsecured notes and borrowings under its asset-based credit facility. Men’s Wearhouse expected that the combined entity would have more than 1,700 U.S. stores and annual sales of roughly $3.5 billion.
Things have not run so smoothly, however. In November, Men’s Wearhouse ended a popular promotional campaign of Jos. A. Bank’s that offered shoppers a buy-one, get-two bargain. The move triggered a stock price drop of more than 30 percent. Men's Wearhouse reported a third quarter 2015 loss of $27.1 million on Dec 9. By contrast, the retailer reported a $6.8 million profit for the same period a year earlier.
"When we acquired Joseph Bank, we knew that we needed to correct the promotional model,” Ewert said in December. At that time, the company also said it would explore voluntary debt repayments this year. The debt has been slipping in the secondary trading market, according to financial information services firm Markit. For instance, Men’s Wearhouse’s 7-percent bond, due 2022, was bid at 69.5 cents on the dollar by investors on Jan. 29, down from 78.5 cents on the dollar two months earlier. Men’s Wearhouse will release its fourth quarter results on Feb. 16.
For the previous edition of Turnaround Talk, see, “GrubHub Reveals Plans to Strengthen Balance Sheet”. For more struggling companies, check out Mergers & Acquisitions' Distressed Company Watch List.
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