PacSun Is Off the Stock Market: What's Next for the Brand?

An investment bank associate explains what this means for PacSun.

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Complex Original

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Yesterday, WWD reported that PacSun would be removed from the Nasdaq stock market. PacSun, if you recall, officially filed for bankruptcy back in April.

According to reports, the retailer's shares traded below the required $1 USD minimum at least once over a period of 30 consecutive business days, and thus failed to meet Nasdaq requirements for continued listing. PacSun was reportedly set to appeal the decision, but revoked the request when it filed for bankruptcy. 

An auction for the retailer was scheduled for this past June, but the only bidders were its lender, Golden Gate Capital. We've reached out to PacSun for comment but did not hear back at press time. 

So, what does this all mean for the company? We aren't exactly sure either, so we've turned to an expert. A New York-based investment bank associate, who asked to remain anonymous because he isn't allowed to publicly comment on the PacSun situation, explains the jargon, and whether or not PacSun can come back from this. 

What does it mean when a company is listed on the stock market? Why would they be listed?
When a company is listed on a stock market, it means that anybody can purchase shares of it. This has several effects, including but not limited to: wider investor base as they have access to public markets (if a company is private then there are regulations that only certain companies or people would be able to invest in them); it provides a public price for the stock; it provides liquidity to shareholders. It's easier to sell ownership in a public company than in a private company. 

What does it mean when a company is taken off the stock market?
When it's off the stock market, there is no active, monitored market where the shares trade anymore. You can still purchase parts of the company, but it would be more difficult to do so.

Why is PacSun being removed from the Nasdaq stock market?
Stock exchanges have minimum prices for a share to trade at in order to remain listed on the exchange. For example, the minimum for the New York Stock Exchange is $5/share. The rationale behind this is that investors perceive a certain price level as safe to invest in i.e. if a share is trading at 30 cents, people will think the company sucks and won't invest.

What does it mean for a company filing for bankruptcy if it's taken off the stock market?
There are two separate things at play here. First, a company files for bankruptcy because they either anticipate and otherwise cannot pay any debt and other obligations as they come due. For example, if a company owed a debt holder $100 million, but only had $20 million of cash on hand, they would file for bankruptcy protection because the debt holder would have recourse to the $20 million of cash and then attempt to liquidate other assets of the company in order to get as much of their $100 million as possible.

Is there still hope for that company to survive? 
If a company files for Chapter 11 bankruptcy, then yes, there is hope to survive. Chapter 11 means that the company is attempting to restructure its balance sheet (reduce its financial obligations) through a variety of different levers. If a company files for Chapter 7 bankruptcy, like Sports Authority just did, then they're liquidating their assets and plan to go out of business.

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