Forever 21 has filed a detailed disclosure statement outlining its proposed Chapter 11 plan that would liquidate all of its approximately 354 U.S. stores while continuing to pursue potential going-concern sale options. The document, filed on March 28, 2025, in the U.S. Bankruptcy Court for the District of Delaware, provides comprehensive details on the retailer's financial condition and proposed distribution scheme following its bankruptcy filing earlier this month.
The fast-fashion retailer, which began closing stores in February, cited inflation, decreased consumer spending, and competition from foreign online retailers as contributing factors to its financial demise. According to the disclosure statement, the company and its secured lenders reached an agreement on a liquidation plan that would distribute available proceeds in accordance with bankruptcy priority rules.
F21 OpCo, LLC and its affiliates commenced their Chapter 11 cases on March 16, 2025, just months after parent company SPARC Group was acquired by JC Penney. At the time of that December 2024 acquisition, which created a new entity called Catalyst Brands, JC Penney had publicly stated it was exploring strategic options for Forever 21.
"The Company has faced a number of adverse events and conditions even as people returned to in-person shopping once the COVID-19 pandemic eased," the retailer stated in its disclosure statement. These challenges included "the historic rise in inflation rates, decreased consumer discretionary spending, shifting consumer preferences, and the ability for certain non-U.S. online retailer competitors to take advantage of the 'de minimis exemption' which exempts goods valued under $800 from import duties and tariffs resulting in non-U.S. retailers selling their products at drastically lower prices to U.S. consumers."
The filing reveals the company has lost more than $400 million over the last three fiscal years, including approximately $150 million in fiscal year 2024 alone. Current projections indicate the company is anticipated to lose another $180 million in EBITDA through 2025.
Expected Creditor Recoveries by Class
The disclosure statement outlines anticipated recoveries for creditors across all classes:
- Class 1 (Other Secured Claims): Unimpaired with projected 100% recovery on estimated claims of [$0.00]
- Class 2 (Other Priority Claims): Unimpaired with projected 100% recovery on estimated claims of [$0.00]
- Class 3 (ABL Claims): Impaired with projected recovery of [2.36% - 3.01%] on approximately $1.09 billion in claims
- Class 4 (Term Loan Claims): Impaired with 0.00% projected recovery on approximately $320.9 million in claims
- Class 5 (Subordinated Loan Claims): Impaired with 0.00% projected recovery on approximately $176.1 million in claims
- Class 6 (General Unsecured Claims): Impaired with projected recovery of [0.19% - 0.46%] on estimated claims of [$433.0 million]
- Class 7 (Intercompany Claims): Unimpaired/Impaired with no specified recovery
- Class 8 (Intercompany Interests): Unimpaired/Impaired with no specified recovery
- Class 9 (Existing Equity Interests): Impaired with 0% projected recovery
The plan features a tiered recovery structure for ABL Claims and General Unsecured Claims based on voting outcomes. If Class 6 (General Unsecured Claims) votes to accept the plan, ABL Claim holders will receive 94% of net proceeds, while General Unsecured Claim holders will receive 6%. If Class 6 votes to reject the plan, ABL Claim holders will receive 97% of net proceeds, with General Unsecured Claim holders receiving only 3%.
Term Loan and Subordinated Loan Claims, despite being sizeable at over $496 million combined, will receive no distributions under the plan, though claim holders who are "Consenting Creditors" will receive releases.
Store Closing Process Already Underway
Prior to filing bankruptcy, Forever 21 had already commenced store closing sales at approximately 236 retail locations on February 14, 2025, followed by sales at its remaining 118 locations on February 27. The company retained a liquidator joint venture comprised of Hilco Merchant Resources, Gordon Brothers Retail Partners, and SB360 Capital Partners to conduct the store closings.
According to court documents, all store closing sales are expected to be completed before May 1, 2025, with many locations closing before April 1.
Debt Structure and Recovery Plans
The bankruptcy filing reveals Forever 21 has approximately $1.582 billion in funded debt, including:
- $1.085 billion under an ABL Facility
- $321 million under a Term Loan Facility
- $176 million under a Subordinated Loan Facility
Notably, SPARC Group LLC has agreed to waive its right to recover 75% of its approximately $323 million intercompany payable, which reduces the general unsecured creditors' claim pool by approximately 37.5% and improves recoveries for other unsecured creditors.
"The Board believes that the negotiated consideration described above more than sufficiently warrants the Debtor Release of such parties and provides a meaningful improvement in available proceeds for other Holders of General Unsecured Claims," the company stated in its filing.
Second Bankruptcy in Five Years
This marks Forever 21's second bankruptcy filing since 2019, when its predecessor, Forever 21, Inc., filed for Chapter 11 protection following an aggressive foreign expansion campaign. That bankruptcy resulted in a sale to a joint venture formed by Simon Property Group and Brookfield Property Partners (on one hand) and Authentic Brands Group (on the other).
One year after that transaction, Brookfield sold its interest to SPARC Group. The current bankruptcy comes approximately three months after JC Penney acquired SPARC in December 2024, creating Catalyst Brands.
Prior to the bankruptcy filing, Forever 21 established a new board of managers on January 14, 2025, consisting of restructuring professionals Paul Aronzon and Scott Vogel. On January 16, 2025, Stephen Coulombe and Michael Brown of Berkeley Research Group were appointed as Co-Chief Restructuring Officers.
The company has retained Young Conaway Stargatt & Taylor, LLP as lead counsel, Paul, Weiss, Rifkind, Wharton & Garrison, LLP as special corporate and finance counsel, and Berkeley Research Group as restructuring advisors.
The case is proceeding on an expedited timeline, with a voting deadline of June 2, 2025, and a target effective date of June 19, 2025.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 172 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.
Link to full document: Disclosure Statement for Debtors' Joint Plan Pursuant to Chapter 11 of the Bankruptcy Code