Forever 21 lines up bankruptcy filing

Retail mall landlords could struggle to fill units if the fashion retailer sheds stores under bankruptcy protection

Fashion retailer Forever 21 is said to be filing for bankruptcy protection. Mall owners in the US could face problems re-letting stores if the retailers uses to bankruptcy regime to offload units. AP

Forever 21 is preparing for a potential bankruptcy filing as the fashion retailer’s cash dwindles and turnaround options fade, according to people with knowledge of the plans.

The company has been in talks for additional financing and working with a team of advisers to help it restructure its debt, but negotiations with possible lenders have so far stalled. Focus has thus shifted towards securing a potential debtor-in-possession loan to take the company into Chapter 11, they said, even as some window remains to strike a last-minute deal that keeps it out of court.

Representatives for Forever 21 did not respond to a request for comment.

A bankruptcy filing would help the company to shed unprofitable stores and recapitalise the business, said the people, who requested anonymity discussing private talks. Yet it could also be problematic for major mall owners in the US, including Simon Property Group and Brookfield Property Partners. Forever 21 is one of the country's biggest mall tenants still standing after a wave of bankruptcies in the retail sector.

If the chain were to close a significant number of stores as part of the restructure, its landlords could have trouble filling the vacancies. Simon in Indianapolis counts Forever 21 as its sixth-largest tenant excluding department stores, with 99 outlets covering 1.5 million square feet, according to a filing as of March 31.

Co-founder Do Won Chang has been focused on maintaining a controlling stake in Forever 21, which has limited its fund-raising options.

A faction of company officials, without the approval of Chang, had asked its biggest landlords to consider taking a stake in the retailer amid a disagreement within its leadership.

Founded in 1984, Forever 21 operates more than 800 stores in the US, Europe, Asia and Latin America.