Skip to main content

Fitch Ratings: Liquidations common in retail bankruptcy cases

U.S. retail bankruptcy cases more frequently end up in liquidation than other sectors, and tend to have outstanding first-lien recoveries.

That's according to the latest addition to Fitch Ratings' case study series, "Retail Bankruptcy Enterprise Values and Creditor Recoveries." Fitch examined 39 U.S. retail cases filed since 2005, including nine new cases resolved since its September 2016 retail sector bankruptcy study. The new cases were Gymboree, Payless, rue21, True Religion Apparel, Aeropostale, BCBG Max Azria Global Holdings, Golfsmith International, Hancock Fabrics, and Pacific Sunwear.

"Bankrupt retailers often find themselves without a reason to exist from a consumers' standpoint or a financial lifeline to help them rebuild, making liquidation a relatively common solution," said Sharon Bonelli, senior director, leveraged finance. "Sometimes the operating challenges that cause a retailer to spiral into distress in the first place follow them into the bankruptcy process, creating obstacles to turning around a fallen brand."

More than half of the 33 general retail cases studied since 2005 ended in liquidation. A number of recent retailer bankruptcies were resolved as going-concerns, albeit often with a smaller store footprint. Recent examples include Aeropostale, Gymboree, Pacific Sun, Payless, rue21, and True Religion.

Fitch believes the retail sector will remain under pressure over the next year.

"We have 17 retailers on our Primary Bonds and Loans of Concern lists, which indicate a material likelihood of default," the company stated. "At end-November 2017, the U.S. retail term loan default rate stood at 8% -- much higher than the 0.4% recorded at end-2016."

Fitch forecasts the retail sector default rates could rise to 7% for bonds and 10% for institutional term loans by end-2018.

The full report, "Retail Bankruptcy Enterprise Values and Creditor Recoveries: Fitch Case Studies -- 18th edition," is available at
This ad will auto-close in 10 seconds