Gap Inc.’s bondholders appear to have a case of Larsson-itis.
Fitch Solutions said today that the departure last week of Stefan Larsson as global president of the retailer’s resurgent Old Navy division seemed to prompt a significant boost in the cost of insuring Gap’s debt from default. Larsson left to become chief executive officer of Ralph Lauren Corp.
“The Gap’s CDS spread widening in recent days likely reflects market concerns stemming from the exit of Old Navy’s chief, who had been the driving force behind that brand’s turnaround,” said Fitch director Diana Allmendinger.
The debt watchdog noted that five-year credit default swaps for Gap’s debt have widened 50 percent over the past week “to price at the widest levels in over three years.” Credit default swaps are similar to insurance policies that protect investors when companies default on their debts.
“After pricing consistently in line with [investment grade] ‘BBB’ levels over the course of this year, credit protection for the Gap is now pricing in below investment grade territory,” Fitch said.
Stock investors have also worried over the executive’s departure and pushed shares down about 4.3 percent since the news broke. Gap stock was down 1.4 percent to $28.68 in midmorning trading.
Jill Stanton, executive vice president of global product at Old Navy, is heading up the division while it searches for a new global brand president to succeed Larsson.
Gap’s chief executive officer Art Peck said: “We have an impressive team at Old Navy, with some of the best creative and business talent in the industry, and they are delivering consistent results. We have a clear strategy in place, and I have every confidence the brand will continue to build on its momentum and realize its substantial growth potential.”
Lauren said of his new hire: “Stefan has the sensitivity of design and of building a business and growing companies. That’s rare in our business. Usually, it’s one or the other.”