Of at least 10 merchants to file for chapter 11 protection from creditors in the past year, four are taking the trip to bankruptcy court for the second time in as many years, Bloomberg News reported on Friday. After struggling to boost earnings after the financial crisis, retailers have been battered by declining foot traffic, the rise of big-box stores and the growing clout of Amazon.com. Many were further encumbered when they took on debt to fund private equity-sponsored acquisitions. The existence of repeat filers points not only to the depth of the retail crisis, but also to the tensions at play in any restructuring. “Unfortunately, there’s a natural pressure to over-lever a company coming out of bankruptcy,” said Keith Maib, a senior managing director at turnaround advisory firm Mackinac Partners. “The old holders want to continue to be debt holders,” he said, which makes it difficult for a company to reduce the amount of money it owes. Data from the UCLA-LoPucki bankruptcy research database show that of 66 retailers that filed for chapter 11 since 1979, only 40 emerged, with the rest liquidating their assets in the court process. Of those that did survive, 19 eventually ended up back in court.
