Bon-Ton Stores shares drop as bankruptcy speculation rises

Parent company of Younkers

The stock price of Bon-Ton Stores Inc. sank to historic lows Tuesday amid speculation the struggling retailer is headed toward bankruptcy.

Shares of Bon-Ton, the parent company of Younkers and other department stores, closed at 23 cents after dropping as low as 17 cents.

A year ago, a share of Bon-Ton stock cost about $1.30.

Bon-Ton, which has dual headquarters in Milwaukee and York, Pa., faced a deadline Monday to pay $14 million in interest on a loan — a payment it previously delayed by using a 30-day grace period.

Tuesday afternoon, Bon-Ton issued a statement saying it has entered into forbearance agreements in which lenders and debt holders would hold off taking action against the company because of the missed payment until Jan. 26. The forbearance agreements could be extended, Bon-Ton said.

The company also reiterated Tuesday it is engaged in discussions with its debt holders in an effort to strengthen Bon-Ton’s capital structure to support the business.

The decision last month to delay the payment led S&P Global to lower its credit rating on Bon-Ton. S&P said postponing the loan payment may be an indication debt restructuring, possibly in bankruptcy court, was likely in the near future.

Late last week, Bloomberg News reported that senior creditors of Bon-Ton were pushing the company to file for bankruptcy, citing unidentified people familiar with the matter. If the company does enter bankruptcy, it’s not clear whether it would seek to liquidate or to reorganize, Bloomberg reported the people said.

The increase in online competition and reduced foot traffic at malls have hit Bon-Ton department stores harder than some other retailers.

Bon-Ton, which has debt of about $1 billion, has not been profitable for the past six fiscal years and will post another unprofitable year for fiscal 2017. Through the first three quarters of its 2017 fiscal year, Bon-Ton lost $135.4 million.

In Chapter 11 bankruptcy, a company is allowed to replace its current debt structure with a renegotiated debt structure.

But often, Chapter 11 cases wind up in a sale of the assets or a restructuring that changes the ownership, said Milwaukee attorney Peter Blain, partner at Reinhart Boerner Van Deuren and chairman of the firm’s business reorganization practice.

Retail bankruptcy is “particularly difficult” because in addition to too much debt, a retailer may have fundamental business model issues, in part because of heightened competition from e-commerce, Blain said, speaking generally rather than specifically about Bon-Ton.

“Retail cases are very hard, and many of them wind up liquidating and selling off trade names, trademarks,” Blain said. “Given the structure of many retail companies, it’s almost a real estate company because they own so much real estate or have so many lease relationships in shopping centers around the country.”

Bon-Ton announced in November it plans to close at least 40 stores by the end of 2018. Eliminating 40 stores would represent the shutdown of about one-sixth of Bon-Ton’s 260 department stores, furniture galleries and clearance centers in the United States. The company has not said which stores will close, although it has slated three for closing Jan. 31 — in Michigan, New York and West Virginia — since that announcement.

Bon-Ton operates department stores, nine furniture galleries and clearance centers. In addition to Younkers, Bon-Ton Stores operates department stores under the the Boston Store, Bon-Ton, Bergner’s, Carson’s, Elder-Beerman and Herberger’s brand names.

A Younkers store is located in the Marshalltown Mall.