Mall retailer Deb Shops facing possible closure

Deb Shops, a woman's clothing retailer with stores in three area malls, has filed for bankruptcy protection for the second time in three years and could close its stores.

The mall-based retailer, which caters to junior and plus-sized female customers, initiated a Chapter 11 reorganization last week and put together an official creditors’ committee with seven members.

Three landlords sit on the committee, together with three apparel suppliers and one packaging maker. The landlords include Indianapolis-based mall manager Simon Property Group Inc. and General Growth Properties Inc. The committee selected Cooley LLP and Drinker Biddle & Reath LLP as lawyers.

A hearing is set for Wednesday in the U.S. Bankruptcy Court in Delaware to seek approval of bidding procedures. Absent a better offer, Philadelphia-based Deb wants the court to authorize hiring a joint venture between Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC to conduct store-closing sales.

The 295-store chain has local stores at Castleton Square, Greenwood Park and Metropolis in Plainfield. It operates several other stores in Indiana, including locations in Muncie, Lafayette, Richmond and Terre Haute.

For now, the bankruptcy is being financed with a $23 million revolving credit from pre-bankruptcy lender PNC Bank NA, owed about $25 million on an existing loan.

In addition to the PNC Bank debt, the company owes about $74.5 million on a pre-bankruptcy secured term loan with Ableco LLC as agent, according to court papers.

Deb reported assets of some $90.5 million and liabilities totaling approximately $120.1 million on a consolidated basis as of Dec. 31, according to court papers. Liabilities include about $11.3 million in trade payables.

Deb’s predecessor, DSI Holdings Inc., filed bankruptcy under Chapter 11 in 2011 to facilitate a transaction with first-lien lenders.

The majority of the ultimate parent company’s equity is held by private equity funds affiliated with Cerberus Capital Management (almost 70 percent), Guggenheim Partners (about 21 percent), Lee Equity Partners, and Credit Suisse Securities USA LLC. They acquired ownership in the 2011 transaction, according to court papers.

The company traces its roots to foundation-garment seller Joy Hosiery, established in 1932 in Philadelphia by Philip Rounick and Emma Weiner, according to court papers. The firm expanded with the advent of post-World War II suburban shopping malls. The chain was renamed Deb Shops in the 1970s.

The company specializes in juniors “fast fashion” and offers moderately priced clothing, accessories and shoes for young women.

“Deb’s recent performance has been strained due to a combination of factors, including historic lack of capital invested in business resulting in old, tired stores with unfavorable mall traffic trends and general weakness in the competitive juniors space,” CEO Dawn Robertson said in court papers.

Fast-fashion retailers specialize in inexpensive, trendy clothing in the latest designs.

A number of retailers of women’s clothing have folded in the past year as shopping-mall traffic stagnates and consumers look to the Internet for bargains. Loehmann’s began its bankruptcy last December, with 39 stores in 11 states. Coldwater Creek sought creditor protection in April with plans to liquidate the business. Dots and Ashley Stewart also filed as sales declined and losses mounted after the recession.

Teen retailer Delia's announced last week that it was closing 92 stores, including locations at Circle Centre and in Carmel.