As expected from previous business reports, discount retailer Payless ShoeSource filed for Chapter 11 bankruptcy protection in April 2017 due to crushing debt and weak sales.

Two weeks earlier, Bloomberg Business reported that the “struggling” discount shoe chain was preparing a bankruptcy filing, citing sources familiar with the matter:

The company is initially planning to close 400 to 500 stores as it reorganizes operations, said the people, who asked not to be identified because the deliberations aren’t public. Payless had originally looked to shutter as many as 1,000 locations, and the number may still be in flux, according to one of the people.

Payless’s bankruptcy would add to a tumultuous year in retail, with several bankruptcies and hundreds of store closings — even at companies that aren’t distressed. The industry is racing to try to adapt to more online purchasing and a shift away from mall shopping.

Payless was founded in 1956 and was bought out by Golden Gate Capital and Blum Capital Partners in 2012. In February 2016, Moody’s Investors Service downgraded the brand’s profile, projecting 12 to 24 months of fiscal challenge for Payless, which is in debt to the tune of approximately $665 million:

Moody’s Investors Service (“Moody’s”) downgraded Payless Inc.’s (“Payless”) Corporate Family Rating (“CFR”) to B3 from B2, and Probability of Default Rating to B3-PD from B2-PD. The company’s $520 million 1st lien term loan due 2021 and $145 million 2nd lien term loan due 2022 were also downgraded to B2 and Caa1, respectively. The rating outlook is negative.

The downgrades reflect weaker than anticipated operating performance and Moody’s expectation that modest improvements to the company’s operating performance over the next 12-24 months will be insufficient to return credit metrics back in line with the B2 rating category.

The CFR rating change indicated that the company was more likely to default on its debt, while the Probably of Default Rating change plunged the brand deeper into the category deemed “speculative and …  subject to high default risk.”

In early April 2017, news accounts reported that the expected Chapter 11 filing had come to pass, and the chain was expected to close nearly 400 of its stores:

Payless ShoeSource is the latest retailer to file for Chapter 11 bankruptcy protection, adding its name to a growing list of chains that have struggled to compete against online and off-price retailers.

As part of the filing, Payless will close nearly 400 stores as it attempts to boost its balance sheet and restructure its debt load. The company currently has more than 4,400 stores in more than 30 countries, according to its website.

“This is a difficult, but necessary, decision driven by the continued challenges of the retail environment, which will only intensify,” W. Paul Jones, Payless chief executive officer, said in a statement.

Like several of the other retail chains that have succumbed to Chapter 11 filings this year, Payless’ parent company was purchased by private equity firms in 2012 for $2 billion. That left the company saddled with debt.

Sources:

Chilson, Morgan.   “Bloomberg: Payless Bankruptcy Looming.”
    The Topeka Capital-Journal.   22 March 2017.

Coleman-Lochner, Lauren and Jodi Xu Klein.   “Payless Is Said to Be Filing for Bankruptcy as Soon as Next Week.”
    Bloomberg.   21 March 2017.

Hirsch, Lauren and Jessica DiNapoli.   “Exclusive: Shoe Chain Payless Explores Debt Restructuring — Sources.”
    Reuters.   13 January 2017.

McCoy, Kevin.   “Payless Reportedly Eyes Bankruptcy Filing, Up to 500 Store Closings.”
    USA Today.   22 March 2017.

Taylor, Kate.   “Payless Could Close 1,000 Stores.”
    Business Insider.   10 February 2017.

Wahba, Phil.   “Payless Said to Close Up to 500 Stores in Bankruptcy Reorganization.”
    Fortune.   22 March 2017.

Moody’s Investors Service.   “Rating Action: Moody’s Downgrades Payless’ CFR and Term Loan Ratings; Outlook Changed to Negative.”
    12 February 2016.