The creditors of TOMS Shoes have agreed to take over the casual footwear brand in exchange for restructuring its debt, according to a company letter sent to employees obtained by Reuters.
Credit ratings agencies including Moody’s had warned that TOMS, which is known for its charitable giving and “One for One” shoe donation model, would not have been able to repay a $306.5 million loan ($299 million of which is outstanding) due in October 2020 without renegotiations with its creditors. Both Moody’s and Fitch Ratings had said that chances were high that Toms would default on its debt this year.
The group of creditors, led by Jefferies Financial Group Inc., Nexus Capital Management LP and Brookfield Asset Management Inc., will take over ownership of TOMS from Founder Blake Mycoskie and private equity firm Bain Capital, according to the report. Mycoskie and Bain each own a 50% share in the retailer. Bain had acquired its 50% stake in TOMS in 2014 for $313 million, valuing the company at $625 million, including debt.
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It is not yet clear whether Mycoskie will continue to have a role with the company, given that he will no longer be an owner.
To support growth, the creditors are investing $35 million into TOMS and restructuring its balance sheet, according to CEO Jim Alling.
The TOMS scenario is very similar to the declines faced by apparel and footwear sellers in recent years. Private equity-owned retailers with significant debt loads continue to have trouble fighting competition on factors such as pricing and convenience, especially against mass merchants, off-price retailers and online DTC brands. Many of these brands are often forced into bankruptcy, debt restructuring deals or even liquidation.
Since its founding in 2006, TOMS has donated nearly 100 million pairs of shoes to children, giving away a pair to those in need for every pair a shopper buys. The company’s charitable model has continued to evolve, with the retailer committing one-third of its net profits toward a fund that finances a wide range of philanthropic and social causes.
