By  on September 4, 2009

Liz Claiborne Inc., which has already aggressively cut expenses to counter sagging sales and widening losses, has hired consulting firm Alvarez & Marsal to review the company’s working capital and cost-reduction plans with an eye toward further improving cash flow.

Bankers behind Claiborne’s asset-backed loan suggested the company get some help as it seeks to strengthen its finances.

With a turnaround in the works at its European Mexx business, the Isaac Mizrahi-designed Liz Claiborne New York line still finding its footing, $82.1 million second-quarter losses and sinking debt ratings, Claiborne has had a tough go of it lately.

But analysts don’t see bankruptcy as an immediate concern for the company, which, as of July 4, had outstanding borrowings of $717.6 million and cash and cash equivalents totaling $52.9 million.

Alvarez, however, has worked with a number of fashion companies in distress. In 2003, the company helped the then-ailing Levi Strauss & Co. and more recently advised the now-liquidated S&K Famous Brands Inc. and Finlay Enterprises, which is restructuring in bankruptcy.

“When people see the name, sometimes their antenna go up, but in this case, this is very much a limited scope, short-term project,” said Robert Vill, vice president of finance and treasurer at Claiborne.

Vill said the company has a good relationship with its bank group and hired Alvarez for “five or six weeks” to look for opportunities to improve cash flow in both the U.S. and Europe. A&M’s review began late last month.

“We did indicate on the [second-quarter conference] call that we’re never happy with our cost level; [selling, general and administrative] rates still need to come down,” Vill said. “It’s very much operational in focus. It’s not a strategic review.”

The company said last month it plans to cut another $100 million in annual expenses on top of the $70 million in expenses that were cut in February, which included the elimination of 725 jobs.

Scott Tuhy, debt analyst at Moody’s Investors Service, said bringing in the consultancy was consistent with Claiborne’s stated intention to maximize its liquidity.

“I’m not aware that it’s part of any wider restructuring effort,” he said.

Under William L. McComb, who joined as chief executive officer in November 2006, Claiborne has had a few years of intensive retooling, positioning Juicy Couture, Lucky Brand and Kate Spade as independent businesses, shuttering and selling off brands and relaunching the namesake apparel business.

That restructuring ran headlong into the recession, which has made the results of the repositioning harder to see.

“Financial leverage is getting quite high, and we haven’t yet seen the company show that it can stabilize its performance,” said Tuhy, who noted bankruptcy was not an immediate concern.

Last month, Moody’s downgraded the company’s corporate family rating and probability of default rating by two notches to “B2” from “Ba3.”

The debt is on review for further downgrade, in part because Claiborne might be challenged to meet the fixed-charge covenant in its bank agreement, which kicks in next July.

In a filing with the Securities and Exchange Commission last month, Claiborne said it did not expect to be able to comply with the covenant if it does not return to profitability in 2010. The covenant could also be amended.

The firm’s shares rose 24 cents, or 6.1 percent, to $4.18 in New York Stock Exchange trading Thursday but fell 18 cents, or 4.3 percent, back to $4 in the first hours of after-market trading.

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