Secular challenges including the rise of e-commerce and discount retailers, declining mall traffic, and consumer spending shifts toward services and experiences have created a highly competitive retail environment that has placed some retailers at high risk of bankruptcy, according to Fitch Ratings.

Retailers that have struggled with these challenges, as well as the ebb and flow of brand popularity, often find themselves on a slippery slope to bankruptcy. Negative comps and fixed cost deleveraging lead to negative cash flow and unsustainable capital structures.

"Brand degradation and competitive pressures to either price or experience can be real threats to the survival of struggling retailers," says Sharon Bonelli, Senior Director, Leveraged Finance. "As a result, many retailers move into the bankruptcy process without a real reason to exist and ultimately end up in liquidation more often than bankrupt companies in other sectors."

In most of Fitch's 30 retail bankruptcy case studies, secured debt recoveries have been outstanding, with first-lien lenders making full recoveries on at least one bank loan or secured bond issue. Retailers frequently utilized asset-based loan facilities that are subject to borrowing bases and are well-collateralized. However, second lien recoveries varied and unsecured debt claims recovered poorly.

The full report, "Retail Bankruptcy Enterprise Value and Creditor Recoveries: Fitch Bankruptcy Case Studies - 10th Edition," is available at www.fitchratings.com.