Updated: Debt Load Forces More Bon-Ton Store Closures, Bankruptcy an Option

Department Store Chain Negotiating Debt Restructuring with Bondholders

Struggling department store chain Bon-Ton Stores Inc. (OTCQX:BONT) disclosed today that it has entered into restructuring discussions with some of its lenders after failing to make required interest payments last month.

The chain said it has proposed a more comprehensive, two-year reorganization plan with the lenders, including the decision to close or sell more of its stores.

Last November, the chain announced plans to close about 40 stores following sales declines in the third quarter.

Included in that proposal, which Bon-Ton released to its stockholders this morning, was that it was completing a "more stringent review" of its existing store portfolio.

Bon-Ton, with corporate headquarters in York, PA, and Milwaukee, WI, operates 260 stores, which includes nine furniture galleries and four clearance centers, in 24 states in the Northeast, Midwest and upper Great Plains under the Bon-Ton, Bergner's, Boston Store, Carson's, Elder-Beerman, Herberger's and Younkers nameplates. Annual revenues are approximately $2.5 billion.

The portfolio includes a number of poorly performing stores that "contribute minimal value," according to the company, and are siphoning working capital and management attention away from the more profitable stores in its chain.

[Editor's Note:This story was updated Feb. 1, 3 pm with the list of store closures and additional information from the company.]

The retailer has been reviewing 100 of its worst-performing stores and decided to close 42 stores; another 20 or more stores that need to be monitored for further signs of deterioration, three others that could be sold.

“As part of the comprehensive turnaround plan we announced in November, we are taking the next steps in our efforts to move forward with a more productive store footprint,” said Bill Tracy, president and CEO for The Bon-Ton Stores. “Including other recently announced store closures, we expect to close a total of 47 stores in early 2018. We remain focused on executing our key initiatives to drive improved performance in an effort to strengthen our capital structure to support the business going forward.”

The common element of the group of stores being, the company said, is that they are located in "dying malls and centers suffering from overwhelming competitive pressures."

The company said it could also generate up to $4 million in rent savings from the anticipated closings across the remainder of its portfolio that it would retain.

With the reduced store portfolio, the company also plans to consider consolidating its number of distribution centers from three to two.

At the same time, Bon-Ton store said there is an opportunity to invest in new store openings, particularly in markets where Macy's has been abandoning space. The company said it has seen a meaningful uptick in sales in markets where Macy's has already closed stores.

Bon-Ton is projecting opening 14 new stores over the next three years.

In its ongoing negotiations, Bon-Ton said it has not yet reached an agreement on mutually acceptable terms and conditions with the noteholders and that there are no assurances that it will.

Meanwhile, the retailer said it is continuing to seek an equity sponsor and also examining liquidation options. The company said it has already obtained liquidation bids for all of its inventory. Those bids would be sufficient to cover its outstanding asset-backed loan agreements, excluding any potential bankruptcy costs.

Earlier this month, Moody's Investors Service downgraded Bon-Ton Stores based on missed interest payment but still within a 30-day grace period, and said the lowered rating reflects a high likelihood of default. Moody's said it believes Bon-Ton's debt level is unsustainable at current levels.

The company has significant leverage, with unadjusted debt/EBITDA expected to exceed 10.9 times by the end of Bon-Ton's current fiscal year; and weak coverage, with EBITDA less capital expenditures expected to be insufficient to cover interest costs, Moody's said.

For the first three quarters of last year, Bon-Ton posted a loss of $135.4 million compared to a loss of $108.1 million for the same period a year earlier. Comparable store sales decreased 6.6% in the period "due to unseasonably warm weather and the continuation of soft mall traffic trends," the company reported.

However, the department store chain hasn't posted a profit since 2012.

Store Closure List Store, Mall, City, State Herberger's, Pine Ridge Mall, Chubbuck, Idaho Carson’s Clearance Center, Aurora Shopping Center, Aurora, Illinois Carson’s, Riverside Plaza, Chicago, Illinois Carson's, Village Mall, Danville, Illinois Carson’s, Northland Plaza, DeKalb, Illinois Carson’s Clearance Center, Village Plaza, Morton Grove, Illinois Bergner's, Sheridan Village, Peoria, Illinois Carson’s, Streets of Woodfield, Schaumburg, Illinois Carson's, Mounds Mall, Anderson, Indiana Carson's, Fair Oaks Mall, Columbus, Indiana Carson's, Concord Mall, Elkhart, Indiana Carson’s, Circle Centre Mall, Indianapolis, Indiana Carson's, Five Points Mall, Marion, Indiana Younkers, College Square Mall, Cedar Falls, Iowa Younkers, Westdale Mall, Cedar Rapids, Iowa Elder-Beerman, Kentucky Oaks Mall, Paducah, Kentucky Elder-Beerman, Adrian Mall, Adrian, Michigan Carson's, Orchards Mall, Benton Harbor, Michigan Herberger’s Clearance Center, Birch Run Station, Maplewood, Minnesota Bon-Ton, Steeplegate Mall, Concord, New Hampshire Bon-Ton, Phillipsburg Mall, Phillipsburg, New Jersey Bon-Ton, Aviation Mall, Queensbury, New York Bon-Ton, Salmon Run Mall, Watertown, New York Elder-Beerman, Northtowne Mall, Defiance, Ohio Bon-Ton, The Point at Carlisle Plaza, Carlisle, Pennsylvania Bon-Ton, The Commons, Dubois, Pennsylvania Bon-Ton, Millcreek Mall, Erie, Pennsylvania Bon-Ton, The Johnstown Galleria, Johnstown, Pennsylvania Bon-Ton, Susquehanna Valley Mall, Selinsgrove, Pennsylvania Bon-Ton, Nittany Mall, State College, Pennsylvania Bon-Ton, Stroud Mall, Stroudsburg, Pennsylvania Bon-Ton, Trexler Mall, Trexlertown, Pennsylvania Herberger's, Cache Valley Mall, Logan, Utah Younkers, Fox River Mall, Appleton, Wisconsin Boston Store, Heritage Village, Beaver Dam, Wisconsin Elder-Beerman, Eclipse Center, Beloit, Wisconsin Younkers, Forrest Mall, Fond Du Lac, Wisconsin Younkers, Lakeshore Edgewater Plaza, Manitowoc, Wisconsin Younkers, Pine Tree Mall, Marinette, Wisconsin Boston Store Clearance Center, 5659 S. 27th Street, Milwaukee, Wisconsin Younkers, Mariner Mall, Superior, Wisconsin Younkers, Wausau Center Mall, Wausau, Wisconsin Previously Announced Bon-Ton, Valley Mall, Hagerstown, Maryland Younkers, Westwood Mall, Marquette, Michigan Bon-Ton, St. Lawrence Centre, Massena, New York Bon-Ton, University Mall, South Burlington, Vermont Elder-Beerman, Grand Central Mall, Vienna, West Virginia