Iconix Brand Group has reached an agreement with certain convertible bond-holders to convert $110 million in notes to new senior subordinated debt.
The notes to be exchanged were the company’s 1.5 percent convertible notes due March 2018. Following the exchange, the holders will carry new senior subordinated convertible notes, with an interest rate of 5.75 percent and a maturity date of August 2023. The holders of the $110 million in notes slated for conversion will also receive cash payments representing accrued, but unpaid, interest on the 2018 convertible notes.
John Haugh, chief executive officer, said, “These exchange transactions are part of the company’s strategy to satisfy near-term debt obligations and represent a positive step in improving our balance sheet.”
The ceo also disclosed that Iconix has a new cost-savings initiative to improve its profitability and free cash flow. The company expects to achieve annual savings of $12 million through the right-sizing of its expense structure.
“With the reduction in new-term debt from this exchange satisfying a significant condition to the availability of our delayed draw term loan and the cost savings that have been identified, we are now in a good position to finalize the solution for the balance of our upcoming debt obligations,” Haugh said. “From a business operations standpoint, we are reaffirming our 2017 revenue and non-GAAP earnings per share guidance and we are pleased to highlight recent announcements of Starter with Amazon and Umbro with Target as evidence that we are making progress ensuring our brands are with the right long-term partners to maximize market presence and contribution to Iconix.”
Iconix also said its Material Girl brand is expected to transition from a direct-to-retail license to a wholesale license following the expiration of the contract in January 2020. The company was in negotiations with a new vendor that would “run contiguous with Macy’s on a non-exclusive basis and then would be available to be renewed by the vendor for a three-year term. Guaranteed minimum royalties under the Material Girl license for 2018 are $5 million.”
Iconix said that J.C. Penney has indicated that it doesn’t expect to renew its Royal Velvet license when it expires in January 2019.
The company also anticipates 2018 revenue will be in the range of $190 million to $220 million, versus 2017 preliminary revenue of $225 million. It further explained that the year-over-year decline primarily reflects the transition of the DanskinNow and Mossimo brands, which together are estimated to decline $25 million in 2018.
Shares of Iconix rose 41.6 percent to $1.77 in Nasdaq trading at 10:18 a.m.