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Claire's Boutique to shed debt through bankruptcy

The tradition of young girls spending hours at the mall and shopping for jewelry and sunglasses may be a thing of the past. Online shopping may be the cause of these changing times, but for retailer Claire’s Boutique, it means that a wholesale change in its business structure became necessary.

According to a recent usatoday.com report, Claire’s filed for Chapter 11 bankruptcy protection. The principal explanation for the filing was to shed nearly $2 billion in debt created in part by outside investors who supported retailers like Claire’s nearly a decade ago. Now that the payment on such debt has become too burdensome, especially with stiff competition from online retailers and smaller pop-up shops.

Representatives for Claire’s indicate that the company has secured support for a debt cutting campaign from its largest secured creditors, including hedge funds Elliot Management and Monarch Alternative Capital. The plan calls for the company to reduce a considerable amount of debt and emerge as a leaner and healthier company in September, just in time to be ready for the holiday season which is crucial for the success of a retailer.

More importantly, by filing for Chapter 11 bankruptcy, Claire’s may not have to close any of its 7,500 locations (which include 5,300 in the United States alone). It also employs nearly 17,000 people and has no plans for layoffs.

It remains to be seen whether Claire’s reorganization plan will be as successful, but it exemplifies the need for experienced legal counsel when changing the direction of a company through bankruptcy.

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