Forever 22

Welcome to Part II of the Forever 21 deep-dive! This is a very lengthy piece, but is quite detailed. We worked very hard on putting together these materials and hope you enjoy. 

This second half of the write-up will cover Forever 21`s second bankruptcy, and will briefly touch on the events that contributed to the bankruptcy. Unlike the first piece, this will focus more on the impact of pre-petition business decisions on the in-court process, as well as actual bankruptcy proceedings themselves. Let’s get into it. 

Copper Retail JV’s Acquisition of SPARC and Debt Restructuring (Background)

As previously alluded to, we will first introduce one of the pre-petition business decisions that played a critical role in shaping the in-court bankruptcy. Despite not materially altering the capital structure, this transaction was highly pertinent to the recoveries of each class. 

In January 2025, Copper Retail JV, LLC – the Simon Property Group and Brookfield-controlled parent of JCPenney acquired Forever 21’s parent company SPARC Group. This transaction effectively merged JCPenney with SPARC’s portfolio of brands (including Forever 21, Aéropostale, Lucky Brand, etc.) into a new entity called Catalyst Brands. As part of this all-equity merger, Forever 21’s operating companies were “joined and obligated” on JCPenney’s existing credit facilities. In other words, Forever 21 became a co-borrower/guarantor under JCPenney’s $1B+ asset-based lending (ABL) credit agreement (pursuant to a December 6, 2024 joinder). This folded Forever 21 into JCPenney’s credit platform, encumbering Forever 21’s assets with the debt of its new affiliates.

This maneuver reshaped the group’s debt structure significantly. Forever 21, which had emerged from its 2019 bankruptcy with relatively modest funded debt, suddenly became jointly and severally liable for JCPenney’s substantial ABL borrowings and other obligations. The ABL lenders now had recourse to Forever 21’s inventory, receivables, and other assets as additional collateral, making them over-secured by a larger collateral pool. From Forever 21’s perspective, however, this added liability provided little new cash influx; it mainly leveraged Forever 21’s assets to backstop JCPenney’s debt. The company was already struggling with declining mall traffic and competition from e-commerce, and this debt load proved unsustainable. Just two months later, on March 16, 2025, Forever 21’s U.S. operating company (F21 OpCo, LLC) filed Chapter 11 protection – its second bankruptcy in six years.

In the Chapter 11 case, it quickly became clear that a full wind-down of U.S. operations was likely. The new Catalyst Brands owners opted not to inject rescue capital; instead, they prepared to liquidate Forever 21’s inventory and close stores. Because Forever 21’s intellectual property (trademarks) is owned by Authentic Brands Group (an SPARC stakeholder), the brand could later be licensed to new operators outside bankruptcy. But the Chapter 11 plan would primarily deal with distributing the remaining asset value among creditors – who now included the JCPenney ABL lenders as a secured class.

Subscribe to Premium to read the rest.