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Payless ShoeSource Filing for Bankruptcy, Following Trend of Struggling Retailers

bankruptcy-store.jpgAccording to the reporting from the Los Angeles Times, Payless ShoeSource has filed for Chapter 11 bankruptcy protection. The company, which is based in Topeka, Kansas, operates stores all around the country, including throughout the state of California. At least 400 stores are set to close nationally, with 30 closing in California alone.

Payless ShoeSource is joining a growing trend of traditional retailers struggling to compete in the current economic climate. Indeed, according to a report from Moody's, the number of U.S. retailers rated as financially 'distressed' has tripled in the last six years. Though the company is closing and liquidating nearly 10 percent of its locations, Payless plans to shed its debt and get back on a sustainable financial path.

Payless Plans to Obtain Financing to Operate Through Chapter 11

The firm is seeking financing to get through the bankruptcy process without any interruption of its overall operations. Indeed, officials from the company stated that some of its creditors have made nearly $400 million in financing available to help the company operate while going through a Chapter 11 restructuring. With this funding available to keep operations going, Payless will seek to reduce its overall debt burden by more than 50 percent.

Accessing Capital While in Bankruptcy

Chapter 11 is known as a 'reorganization' bankruptcy or a 'restructuring' bankruptcy because the entire goal of the process is to get a filing company back on stable financial footing. The goal is not to liquidate the company or to end operations. This means that keeping operations running smoothly during the bankruptcy process is incredibly important. A disruption in operations could do serious, even irreparable, long-term damage to a company's brand.

If additional outside financing is needed to keep operations running, then companies must take action to ensure that they actually have access to this capital. In some cases, businesses may be able to work with their current lenders to get capital. In other cases, businesses may need to use special legal provisions, such as debtor-in-possession (DIP) lending, to obtain an adequate amount of financing. Capital obtained using DIP lending is subject to strict legal requirements and generally must be approved and overseen by a bankruptcy court. Companies filing for Chapter 11 and looking to obtaining financing should always work with an attorney who can help them get through the process successfully.

Do You Need Business Bankruptcy Assistance?

We can help. At Diemer, Whitman & Cardosi, LLP, our skilled San Jose business bankruptcy lawyers have extensive experience handling Chapter 11 cases. To find out more about what we can do for you, please contact our team today to set up your free initial case evaluation. We represent companies throughout Silicon Valley, including in Sunnyvale, Palo Alto, and Mountain View.




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