Deb Shops files for bankruptcy
Deb Shops, Inc. announced it has reached an agreement to implement a financial restructuring of its business that will strengthen the Company's financial health and allow it to continue improving the customer experience at its more than 300 retail locations throughout the U.S.
Deb Shops stores will continue normal operations as the Company implements, and eventually completes, the financial restructuring.
"The announcement is one of the final steps in the completion of the financial transformation and turnaround of Deb Shops," said Mark Hoffman, Deb Shops' Chief Executive Officer. "The agreement dramatically reduces our debt levels and gives Deb Shops the financial flexibility for future investment in our stores and to continue to operate as one of the nationwide specialty retailers of trend-right fast fashion at affordable prices."
"Over the past year, we have significantly improved the customer experience and positioned Deb Shops for future growth," Mr. Hoffman continued. "As a result, the Company's operations have never been stronger, now in the 11th consecutive month of sales growth."
The transaction, which requires Court approval, will be implemented through a filing with the United States Bankruptcy Court for the District of Delaware under Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the proposed transaction, a group of the Company's senior lenders led by Ableco Finance LLC have entered into a stalking horse agreement to acquire substantially all of the Company's assets through a Court-supervised auction under Section 363 of the U.S. Bankruptcy Code. The transaction is expected to close in September 2011. As part of this agreement, Lee Equity Partners LLC will receive an ownership stake in Deb Shops following the sale on account of its interest in the Company's senior credit facility and Lee Equity Partners will continue to support the Company.
Lee Equity Partners purchased Deb Shops in 2007. The dramatic unexpected change in the economy beginning in 2008 made a financial restructuring of this kind critical.
Deb Shops will be seeking Court approval to continue to pay its merchandise vendors in the ordinary course of business during this process and to continue payments and benefits on normal schedules. The Company will continue to be run by the existing management team, led by Mr. Hoffman.
The Company is also seeking Court approval to continue all customer programs, including gift cards, layaways, and exchanges, and expects this request to be granted shortly. Additionally, Deb Shops will continue purchasing merchandise and other materials for sale in its stores, on normal schedules.
In short, the Company expects to continue business as usual throughout the process with no impact on associates, merchandise providers, customers or its business operations.
"This is strictly a financial restructuring of Deb Shops' business and we foresee no impacton our operations as we proceed through this process," Mr. Hoffman said. "I am confident that the agreement announced, combined with the substantial steps we have already taken to improve the customer experience over the past year, will position Deb Shops for a bright and prosperous future."
Ableco Finance LLC and certain of our other senior lenders have committed to provide up to $21.7 million in financing to support Deb Shops' business and liquidity needs during this process.
DEB Shops specializes in junior and plus-sized merchandise for women aged 13 to 25. We operate more than 324 stores throughout the United States, as well as our on-line stor. We offer our customers an extensive selection of items in many colors, styles and sizes.
Deb Shops Inc