Another Private Equity Backed Retailer is in Trouble

Per the Pew Institute:

In the past 10 years, the share of U.S. adults living without a spouse or partner has climbed to 42%, up from 39% in 2007, when the Census Bureau began collecting detailed data on cohabitation.

Two important demographic trends have influenced this phenomenon. The share of adults who are married has fallen, while the share living with a romantic partner has grown. However, the increase in cohabitation has not been large enough to offset the decline in marriage, giving way to the rise in the number of “unpartnered” Americans.

Maybe the rise in co-habitation among romantic partners and the decline in marriage has something to do with the decline of importance of religion. Note this chart:

That said, the decline seems to have more to do with millennial attitudes towards religion AND the institution of marriage than anything else.

What does this have to do with any of you? Well, it seems that attitudes towards marriage are creating some retail distress. In June, Alfred Angelo filed for chapter 7 bankruptcy — much to the chagrin of countless brides-to-be who were left uncertain as to the delivery status of their ordered gowns. Take cover…insert peak Bridezilla.

David’s Bridal Inc. swooped in and tried to save the day. Because HOT DAMN retail is cold today. Customer acquisition needs to come from somewhere. And David’s Bridal needs all the help it can get.

The Conshohocken Pennyslvania-based retailer is the largest American bridal-store chain, specializing in wedding dresses, prom gowns, and other formal wear. The company has approximately 300 stores nationally (and declining). It also has approximately $1 billion of debt hanging over its balance sheet like an albatross. Upon information and belief (because the company is private), the capital structure includes a $125 million revolving credit facility, an approximately $500 million term loan due October 2019, and $270 million of unsecured notes due October 2020. The notes are trading at roughly half of par value, reflecting distress and a negative outlook on the possibility of full payment. Justifiably so. With EBITDA at roughly $19 million a quarter, the company appears 9.5x+ leveraged. And you thought YOUR wedding dress was expensive.

Why so much debt you ask? Well, c’mon now. Surely you’ve been reading us long enough to know the answer: private equity, of course. The company was taken private in a 2012 leveraged buyout by Clayton, Dubilier & Rice. (Petition Note: Callback to that Law360 article where private equity lawyers and bankers alleged that PE firms take too much flack…HAHAHA).

In light of recent trends and the debt, Moody’s recently downgraded David’s Bridal to “negative,” noting:

"‘In our view, this is a reflection of the intense competition in the sector and casualization of both gowns and bridesmaids dresses," Raya Sokolyanska, a Moody's analyst, wrote in a note to investors.”

Competition? You’ve got that right. H&M is all over this space too — grasping at straws to salvage its own languishing prospects.

Consequently, Reuters reported that the company is in talks with Evercore Group LLC ($EVR) to help it address its balance sheet. If hired, we think it would be hilarious if Evercore included this Marketwatch article entitled, “5 brides share their financial wedding regrets” in its pitch to lenders. Choice bit,

“Clare Redway, a marketing director based in Brooklyn who married in June 2016 said she wishes she spent more on the wedding dress, or at least found a more unique one. ‘I just got mine on sale at David’s Bridal,’ she said.”

That ought to stir up some concessions.