Denim retailer Lucky Brand Dungarees has filed for Chapter 11 bankruptcy protection under the weight of the coronavirus pandemic and will close 13 unprofitable stores in the process.

Los Angeles-based Lucky has named SPARC Group as its stalking horse bidder as it looks to sell its assets. SPARC operates the brands Aeropostale and Nautica and is expected to purchase Lucky for $140.1 million in cash and $51.5 million in credit, according to its bankruptcy filing.

Under the purchase agreement, Lucky will sell substantially all of its operating assets through a newly formed subsidiary of Authentic Brands Group, which owns SPARC along with Simon Property Group, named ABG-Lucky LLC.

Lucky has also entered into a backup purchase deal if the acquisition with SPARC isn't completed. 

To ensure the sale moves forward, Lucky has filed for bankruptcy to reduce its $181.97 million debt load, which was compounded by the COVID-19 pandemic. Lucky closed all of its stores in March because of the coronavirus, furloughing the majority of its workers around the same time.

Through the bankruptcy filing, the company has secured new financing commitments from some of its existing lenders, which it said will provide it enough liquidity to maintain its business through the sale to SPARC, which is anticipated to close in mid-August.

Lucky said it will continue to operate under the normal course of business during Chapter 11 while keeping the majority of its stores, e-commerce site, and wholesale business units open. The company expects to continue paying employee wages and healthcare benefits during the bankruptcy filing.

"The COVID-19 pandemic has severely impacted sales across all channels,” Matthew A. Kaness, interim CEO and executive chairman, said in a statement.

“While we are optimistic about the reopening of stores and our customers' return, the business has yet to recover fully.

“We have made many difficult decisions to preserve the company's viability during these unprecedented times. After considering all options, the Board has determined that a Chapter 11 filing is the best course of action to optimize the operations and secure the brand's long-term success.”

Lucky has hired Latham & Watkins, LLP and Young, Conway, Stargatt & Taylor, LLP as its legal counsel while the Berkeley Research Group is serving as its restructuring advisor. Houlihan Lokey Capital, Inc. is the company’s financial advisor and investment banker.

The Lucky Brand was founded in the Los Angeles area in 1990 and has 112 specialty retail stores and 98 outlet stores in North America and sells apparel in a variety of department and boutique retail stores. The company has over 2,800 employees, according to its court filing.

Lucky joins several other retailers that have filed for bankruptcy amid the coronavirus pandemic. Since May, retailers Neiman Marcus, J. Crew, and JC Penney, among others, have filed for Chapter 11.