Money manager Wellington Management Co. is now Liz Claiborne Inc.’s largest investor, having boosted its stake in the firm to 10 percent from 3.8 percent at the end of last year, according to a filing with the Securities and Exchange Commission Monday.

This story first appeared in the April 12, 2011 issue of WWD. Subscribe Today.


As of March 31, Wellington owned 9.5 million shares of Claiborne. The stock dipped 8 cents to $5.46 Monday, putting the value of Wellington’s stake at $51.7 million.

Wellington has about $634 billion under management, and has invested in apparel and accessories firms Coach Inc. and Hanesbrands Inc., and retailers Wal-Mart Stores Inc., The TJX Cos. Inc., Walgreen Co. and Ross Stores Inc.

Word of the increased investment comes just as Standard & Poor’s declared Claiborne to be in “selective default” of its obligations following the completion of what the credit watchdog described as a “distressed” tender offer to refinance a portion of its debt.

The rating change was anticipated and is not expected to result in any contractual or cross defaults.

“It is our opinion that weak consumer spending will hamper the company’s ability to materially improve its operating performance over the next 12 months, but that the company will have adequate liquidity over the near term,” said Jeffrey Burian, S&P credit analyst.

On Thursday, Claiborne said investors tendered 128.5 million euros, or $184.8 million at current exchange, of its 350 million euro 5 percent notes due 2013.

Claiborne paid less than face value for the debt, and S&P cut the company’s corporate credit rating to “SD” from “CC.”

“Under our criteria, we assess the tender offer as distressed and the completed transaction as tantamount to default,” Burian said. “It is our understanding that the remaining outstanding balance of the senior euro notes continue to perform, and therefore we believe there is no contractual default, nor any cross-default to other debt obligations. We expect to assign ratings reflective of the company’s revised capital structure in the very near future.”

Andrew Warren, Claiborne’s chief financial officer, said, “S&P’s downgrade is not a corporate rating downgrade in the traditional sense, but rather a required short-term technical action pertaining to the specific terms and conditions of our tender offer refinancing.”

S&P gave the firm’s $220 million in new 10.5 percent senior secured notes due 2019 a rating of “B-minus,” indicating the company has the capacity to pay off the debt.

Last month, Moody’s Investors Service affirmed Claiborne’s corporate family credit rating at “B3” and said it expects the company “will begin to show meaningful improvement over the remainder of 2011.”

 

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