Sports Authority files for bankruptcy protection drawn by mounting debt

Formerly the leading athletic apparel and footwear retail destination, Sports Authority has succumbed to mounting debt and decreasing margins pressure and sought Chapter 11 bankruptcy protection.

Sports Authority announced Wednesday that it has filed for bankruptcy protection and will be closing 30 percent of its stores.

Sports Authority story of economic struggle goes back to 2006, when its business was burdened with a 1.3 billion dollars leveraged buyout by Leonard Green & Partners. After sorting that out, the retailer faced tough competition from the likes of Dick’s Sporting Goods, lululemon athletica or Gap’s Athleta sportswear brand, having all dented its market share.

In July, Moody’s Investor Services warned that despite the company’s 2.7 billion dollars in revenue, “[M]argin pressures stemming from a highly promotional retail environment and increased shipping costs related to higher e-commerce sales [have] exacerbated EBITDA declines. We expect EBITDA and debt leverage to modestly improve, but remain weak, over the next 12 months… Should these initiatives not bear fruit over the next 12-18 months, refinancing its capital structure could be challenging,” recalls ‘Forbes’.

And time proved that “challenging” could mean “suffocating”: After the retailer missed an interest payment in January this year, Moody’s downgraded the chain to Ca-PD/LD, effectively declaring it to be in default on 300 million dollars’ worth of rated debt. Eight days after, Sports Authority filed for Chapter 11.

Sports Authority owes up to 300 million dollars to Nike, Asics and Under Armour

On Wednesday, the company’s CEO, Michael Foss said in a letter posted on the Sports Authority website that “Due to the changing retail environment, we have a long-term plan to streamline and strengthen our business so we can continue to make necessary investments in our operations, including upgrading our in store experience and enhancing our website.”

As the company advanced, they will be shutting down around 140 stores, or 30 percent of its commercial network, in the coming three months.

In a separate press release, the company also said that in conjunction with the Chapter 11 filing, it expects to have access to up to 595 million dollars in debtor-in-possession (DIP) financing.

Among the companies to which Sports Authority is most indebted are Nike Inc., owed 47.9 million dollars, and Asics America Corp., owed 23.3 million dollars. Under Armour Inc. follows with an unsecured claim of 23.2 million dollars while footwear manufacturer Implus Footwear is owed 9.4 million dollars. Completing the providers who are owed money by Sports Authority is Agron Inc., a licensed dealer for Adidas products such as socks, hats, bags and other sporting goods accessories, which is due 9.2 million dollars.

Additionally, the athletic apparel retailer is obliged mezzanine debt to creditors including TCW, New York Life and Northwestern Mutual of up to a totalling 300 million dollars.