If recent corporate financing activity is any indication of current out-of-the-box thinking in retail and apparel, then expect to see more creative thinking from fashion firms over the next six to nine months.
Here’s the playbook so far on some of the non-traditional financing plays used by firms this year.
Fashion first saw the creative use of intellectual property as an asset-backed securities option in 1999 when the Bill Blass fashion house issued a bond backed by the IP, with future revenues from the trademarks paying the interest owed on the bonds to investors. That was an idea taken from the entertainment industry when David Bowie raised $55 million in 1997 by selling 10-year bonds backed by royalties from 25 of his albums. This year, the industry saw Neiman Marcus Group place its Mytheresa asset along with three real estate properties into separate subsidiaries, and J. Crew electing to place 72 percent of its U.S. trademarks into a new subsidiary out of reach of lenders, which then drew the ire of some of its backers.
Last month, beleaguered contemporary brand Vince Holding Corp. received help from sister company Rebecca Taylor in the form of purchase-order financing in case liquidity problems arise. While unusual, the back-up arrangement is doable as both Vince and Rebecca Taylor are connected to private equity firm Sun Capital Partners.
Perhaps the one company at the epicenter of extensive financial engineering is Sears Holdings Corp., mostly due to the out-of-the-box thinking of its chairman and chief executive officer Edward Lampert. Lampert also has the advantage of being chairman of hedge fund ESL Investments, which has been both willing and able to facilitate several loans to Sears to fund the firm’s turnaround. In addition to some asset-backed loans, Lampert has spun off some of Sears’ real estate holdings to form Seritage Growth Properties, a real estate investment trust. Lampert also controls Seritage, and the REIT has begun releasing the former Sears space as the distressed retailer begins exiting certain locations. Lampert has also spun off assets such as Lands’ End.
What Lampert might do next is unclear. The company has already said it is moving “decisively with its $1.25 billion restructuring program.” And the company has told Wall Street that it still has assets that can be deployed to “fund its turnaround.”