Even in a grueling economy, deals still are getting done. It’s just a question of which debt-financing vehicle is used to do them.
The financial flavors of the moment appear to be warrants and convertible debentures. And the appetite among investors is for risk mitigation.
American Apparel Inc. last month signed off on an $80 million refinancing deal with London-based private equity firm Lion Capital Investment, allowing it to retire a troublesome $51 million credit facility with Michael Dell’s SOF Investments LP, which potentially could have forced it into bankruptcy. Lion’s notes carry an interest rate of 15 percent and mature at the end of 2013. Should Lion elect to exercise detachable warrants for 16 million new shares of American Apparel with a strike price of $2 a share, American Apparel would receive another $32 million in capital and Lion would hold an 18 percent stake in the rapidly expanding company.
After rebuffing a buyout offer from shareholders KarpReilly Capital Partners LP and H.I.G. Capital LLC, two private equity firms, Charlotte Russe Holding Inc. is another specialty chain in the hunt for new financing. Last month, facing a proxy battle over seats on its board from KarpReilly, the San Diego-based company put itself up for sale after receiving what it termed “preliminary expressions of interest” from both financial and strategic buyers.
The initial offer from KarpReilly and H.I.G., made in November, was for between $9 and $9.50 a share, valuing the company at $188.1 million to $198.6 million. Following receipt of the proposal on Nov. 11, shares spiked 18.3 percent to $8.15. On Friday, they were up 75 cents, or 8.5 percent, to $9.59, among the many specialty stores recently elevated by the recovery in retail stocks.
According to Wedbush Morgan Securities retail analyst Betty Chen, the women’s specialty retailer might still have had to solicit buyers even if it didn’t have to deal with objections from other shareholders to the board’s rejection of the KarpReilly bid.
She noted that with a new management team the company may have realized that it would be “difficult to turn around in this economy.” She expects it will probably take nine to 12 months to see any results.
Richard Kestenbaum, a partner at investment banking firm Triangle Capital LLC, said specialty retailers on average are selling for 3.5 times earnings before interest, taxes, depreciation and amortization, about 50 percent lower than two years ago. Naturally, distressed firms and those with weaker performance records will command lower multiples, he explained.
Companies looking for traditional deals involving access to the credit markets may have to be patient.
“Credit markets will improve, but they will not resemble what they were in 2006,” predicted Richard Hastings, consumer strategist at Global Hunter Securities LLC. “The cost of debt capital will remain high, but liquidity will improve. The corporate debt market remains relatively liquid, but the prognosis is for high cost of debt for quite some time.”
Hastings said there are signs that “money is moving from the sidelines to the center, some of it in private equity deals and a lot of debt deals. The public equity markets remain problematic to a degree.”
“The world has shifted and, for the more viable businesses with healthy balance sheets, there’s been a greater emphasis on asset-based financing,” said William Susman, president and chief operating officer at investment banking firm Financo Inc., which served as financial adviser to American Apparel in last month’s deal. “That market remains open. More and more investors, whether private equity, mezzanine or hedge fund [players], are looking for ways to put capital [to work at] companies in ways other than straight equities. Debt plus warrants and convertibles are the offers we see are becoming more and more common.”
According to Susman, many strategic players are “approaching the market cautiously. They don’t want to part with their cash.” For them, the fundamental question will be how much do they really want a particular asset, the banker concluded.
In yet another fashion show shuffle, @elleryland is moving its show in sync with the Paris couture calendar — though the brand is still keeping one foot on the city’s ready-to-wear schedule. Their runway show in January will coincide with the launch of a new strategy: designing two main collections each year instead of four, which will then be released in four drops. “As we all know, the system needs to change. We need to show sooner to give time back to artisans and designers to do what they do best — create,” said founder Kym Ellery. #wwdnews #wwdfashion (📷: @kukukuba)
@maxmara’s classic 101801 coat was the cornerstone of its pre-fall 2018 collection. The design team expanded the traditional double-breasted, kimono-sleeved style into a trapeze coat, lean belted styles and a peacoat and presented them in monochromatic looks – like the camel one pictured here. #wwdfashion #prefall18 (📷: George Chinsee)
The @cfda has shifted the dates of #NYFW, with Men’s showing on February 5 through February 7, and Women’s will directly follow, running from February 8 through 14. The preliminary schedule will be released on the CFDA’s web site in the next few days, but Mark Beckham, VP of marketing for the CFDA, revealed that @rafsimons will be back to close the men’s-specific part of the week with a show on February 7 #wwdfashion (📷: Kelly Taub)
@ferragamo is introducing a new space dedicated to the development of women’s and men’s leather good samples. The laboratory, which is created eco-friendly materials and designed to reduce the environmental impact of the manufacturing processes, will allow the company to expand its accessories offering through traditional artisanal approaches. #wwdfashion (📷: @aitorrosasphoto)
How does a “regular, degular, schmegular” girl from the Bronx, N.Y., become a Grammy-nominated artist with a certified platinum record in less than a year? Call it the @iamcardib come up. The 25-year-old has become a musical sensation, and the fashion world is taking note. “If I could describe her style I would say drama. She’s really into the dramatics,” says Cardi B’s stylist @kollincarter. See how Carter styles her bold and out there looks with the link in bio. #wwdfashion
“There is no formula. There is no guideline. I can watch Ted Talks all day, but there is no one who can advise me on exactly what it is I should be doing,” said @ronniefieg, CEO of @kith, in an interview with WWD’s @ariahughes at the brand’s new SoHo office in Manhattan. Head to WWD.com to see how Fieg went from hanging out in shoe stockrooms at 13 to building his own business. #wwdfashion (📷: @weston.wells)
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion