Dive Brief:

• Apparel seller RTW Retailwinds said in a securities filing that a bankruptcy is "probable" after two months of financial duress amid ongoing disruption from the COVID-19 crisis. The company raised a "going concern" warning that it might not survive in the long term.
• As the pandemic crisis unfolded, RTW closed its stores, furloughed its store staff and permanently laid off 50% of its corporate staff. It also did not pay landlords rent for April and May, nor has it made recent payments to vendors, according to the filing. It has since received "many" default notices from both landlords and vendors, and the company said it could in fact be in default on "all" leases.
• RTW is also "likely in default" on a loan agreement with Wells Fargo, though it has not yet received notice from the bank, the company said. If available borrowing under the loan agreement is reduced, the company said it has no other credit facilities to turn to. "The Company believes without seeking protection under the bankruptcy laws it does not have ability to raise additional capital at this time," RTW said.

Dive Insight:

Going by its public statements, RTW is a retailer in turmoil. Beyond its financial woes, the company, which owns the New York & Co banner, disclosed in April that its CEO-elect resigned unexpectedly along with four of its board directors. 

The pandemic has strained discretionary retailers across the board, prompting them to make painful decisions about staff, investments and which bills to pay. For several retailers already struggling with sinking sales and profit losses, it has become a full-blown existential crisis.

True Religion, J. Crew, Neiman Marcus, J.C. Penney, Stage Stores and Tuesday Morning are among the retailers that have filed for bankruptcy since the pandemic forced stores to close around the country. For those making losses and scrambling for liquidity, the crisis can be the "nail in the coffin" (to use the words of Stage Stores' restructuring officer, after that company filed for Chapter 11). 

RTW has also come under considerable stress. Defaulting on leases, vendor agreements and a credit facility could create the kind of liquidity crunch that forces a retailer into bankruptcy. Stage Stores, for example, faced threats from landlords of locking the retailer out of its stores, which in part tipped it into bankruptcy.

Retailers across the board desperately need liquidity, as many stores still remain closed and sales for the foreseeable future could be volatile and depressed. In March, like many of its peers, RTW made a draw on its credit facility, to the tune of $40 million, to "preserve financial flexibility." Because of the COVID-19 outbreak and steps it has taken in response, it may have defaulted on the loan agreement, RTW said without specifying which terms it may have violated.

All of this came when RTW's business was already struggling. In December, the retailer said it planned to close up to 30 stores as it posted comparable sales declines. Because of operating losses, the company had a retained deficit of nearly $165 million as of Feb. 1 — more than a month before the stay-at-home orders and mass closures in the U.S. The company said it hopes to reopen the majority of its stores by the end of June, but retail sales in general are uncertain as the pandemic persists and recession looms. 

"[T]he Company has been considering available options, including restructuring its obligations or seeking protection under the bankruptcy laws, in which case there will likely not be any value distributed to its shareholders and its shares could be cancelled for no consideration," the company said in its filing. "The Company believes that seeking protection under the bankruptcy laws is probable."