Dive Brief:

• Major mall operator Simon Property Group, along with Taubman Landlords, have filed objections against Ascena Retail Group's Chapter 11 plan of reorganization.
• At issue are plans for key former Ascena banners following their purchase by private equity firm Sycamore Partners. Sycamore had no comment on the objections. 
• In court papers, Simon pointed to Sycamore's intention of closing more stores than originally agreed on, including profitable stores. Such a move "places the business at far greater risk than anyone contemplated at the time of the sale," the landlord alleged.

Dive Insight:

As a mall-based apparel retail conglomerate, Ascena has had a rough time these past few years. The company made major acquisitions just as its sector went into swift and dramatic decline. As sales and profits fell, Ascena threw the kitchen sink at its financial woes, divesting and closing banners, shuffling management, and shedding stores and corporate staff.

The pandemic proved too steep a challenge, and the company filed last year, part of a large class of retailers tipped into Chapter 11 by the myriad difficulties wrought by the COVID-19 crisis. Those were especially acute in apparel, demand for which has fallen with workers and consumers staying home. 

Late in the year, the federal bankruptcy court overseeing Ascena's bankruptcy signed off on the retailer's plan to sell Ann Taylor, Loft, Lane Bryant and Lou & Grey to Sycamore Partners, giving the banners a second chance.

Sycamore is no stranger to retail. Retail names it currently owns include Staples, Hot Topic, Torrid, Talbots, Belk and The Limited. Past acquisitions, including Nine West, have gone bankrupt under their buyout debt. 

The firm has been busy in the COVID-19 era. It recently cut a term loan deal with apparel seller Express that amounted to a liquidity lifeline. It entered and backed out of a deal to take over majority ownership of Victoria's Secret. It also quietly shut down and sold women's apparel seller Coldwater Creek. 

Sycamore's acquisition of several of Ascena's core brands represents a major addition to its mall store portfolio. Now Simon is raising alarms about the new entity formed out the banners Sycamore picked up. 

"Since then the Purchaser has laid bare its intention to significantly reduce the business' physical store presence in the near term," attorneys for Simon said in its objection. "The result will be a significantly less creditworthy lessee than the entity with which the Simon Landlords originally contracted."

The mall operator — itself an owner of several prominent retail brands, including J.C. Penney and Forever 21 — added that the new entity's "significantly reduced store footprint and mix of remaining stores not only will diminish the profitability of its brick-and-mortar business, but also will hurt its e-commerce business, as a strong physical presence drives e-commerce sales and profitability as well."

The sticking point for Simon is what the company said was, under the original purchase agreement, a plan to keep at least 900 stores operating under the Sycamore entity and a master lease Simon entered with Ascena amid those negotiations. "The Purchaser's about face from the Master Agreement in favor of a far different, and worse, store lease portfolio, places the business at far greater risk than anyone contemplated at the time of the sale," Simon said.