NEW YORK — About two weeks before Bill Blass sold his company via an unorthodox bond deal in November 1999, the designer called to his office the financial mastermind behind the plan and gave him a stern warning: “I love you, I’ve loved working with you, but if you don’t close my bond deal in two weeks, you’ll never do another deal on Seventh Avenue again.”
That memory has stuck with Robert W. D’Loren, president and chief executive officer of UCC Capital Corp., the investment firm that structured the management-led takeover of Bill Blass Ltd. through a bond that was tied to the revenue-generating value of its trademarks. Had the deal not been completed, D’Loren was well aware that his experiment with securitizing Blass’ intellectual property would be his last, at least in fashion.
“If it wasn’t for Bill, we wouldn’t be on Seventh Avenue,” said the 46-year-old executive, whose firm has been involved in an increasing number of fashion transactions, Blass’ example having paved the way for similar deals with Gloria Vanderbilt, Candie’s Inc. and The Athlete’s Foot.
In recent weeks, D’Loren has also played a part in Oscar de la Renta Ltd.’s change in lenders with a $5 million private placement, orchestrated the sale of the Badgley Mischka trademarks to Candie’s and was highly involved in the bidding for Barneys New York — albeit on the side of one of the losing teams, that of Elie Tahari.
On Friday, UCC placed another $53 million bond offering, this time for BCBG Max Azria Group. (For more on that deal, see page 22.)
The appetite for alternative financing has continued to build in the fashion industry as more traditional routes of raising capital, like the stock market, have fallen out of favor. As a result, there have been a plethora of deals such as asset-backed transactions, which rely more on conceptual thinking than good old-fashioned tangibles. D’Loren believes the opportunities will continue to expand given the changing nature of businesses that specialize in branded products, due to the rise of cheap overseas labor and the merging worlds of entertainment, media, technology and fashion.
“Wall Street is not geared toward Seventh Avenue,” D’Loren said. “They don’t have the patience to deal with the designers. They’re forced into the model of taking apparel companies public, which I don’t feel is the right situation. We’re just a little different.”
As more production is outsourced, he noted, fashion companies especially are finding that their most lucrative assets are no longer in factories and infrastructure, but rather in their names, which is why D’Loren found himself suddenly intrigued by the recent plight of Mark Badgley and James Mischka.
The designers — despite a proven track record for dressing celebrities, $30 million in sales and a great editorial following — still couldn’t manage to make a profit. Their parent company, Escada USA, which had been supporting Badgley Mischka for 12 years, put the label on the block, but after a year it appeared that any suitors, as plentiful as they may have been, were not willing to pay what Escada or the designers had expected.
D’Loren felt he could do something for the designers and agreed the brand was undervalued. In UCC’s other deals, D’Loren provided financing that resembles an average mortgage — using capital raised from insurance companies or hedge funds, UCC makes a loan to the designer which is secured by their intellectual property through the issuance of bonds, and then the designer pays down the loan over time. (Blass, before he died in 2002, once confessed he had no idea how it worked, but was nonetheless grateful for the $50 million paycheck.)
In this case, however, D’Loren connected Badgley and Mischka with Candie’s chief executive officer Neil Cole, who orchestrated a cash-free deal for the designers’ trademarks by paying Escada with new shares of Candie’s stock. D’Loren has served on Candie’s board since UCC helped the company raise $20 million through a 2002 bond issue, and also helped advise the firm on its shift from a manufacturing base to a strictly licensing entity. Candie’s stock has since jumped from 50 cents to a 52-week high of $6.34, a peak reached shortly after the Badgley Mischka acquisition. On Tuesday, its stock closed at $5.59, following the announcement of its deal to sell Candie’s product exclusively at Kohl’s Department Stores. Its turnaround proved to be an appealing enough risk for Escada, which would see the value of its deal increase as long as Candie’s stock continues to go up.
Candie’s did not disclose the number of shares it paid for Badgley Mischka at the time the deal was announced, but a subsequent Securities and Exchange Commission filing revealed that the company issued 214,981 shares of common stock — which would be worth $1.2 million as of Tuesday’s close.
The deal also stipulates that should Candie’s shares fall substantially in the six months since the deal closed on Oct. 29, the sale price would be adjusted upward via a payment of additional Candie’s shares to Escada. Where Candie’s will make a significant cash investment is in the establishment of a new studio and operations for a designer collection under the Badgley Mischka name, as well as paying the designers their salaries.
UCC also stands to profit substantially from the deal, as D’Loren was instrumental in encouraging Candie’s to pursue the brand and is expected to play a personal role in mapping out the company’s plans with Badgley Mischka. The SEC filing revealed the company is entitled to 5 percent of Badgley Mischka’s gross revenues, including royalties, until the brand should ever be sold again (in that case, UCC would also get a cash payment).
All this makes D’Loren an interesting new force on Seventh Avenue.
“It’s a tough industry to break into,” admitted D’Loren, a native New Yorker who earned an advance degree in architecture from Columbia University before pursuing a career in finance — a creative background that he says has given him an edge in understanding designer businesses. Much of his professional history has been focused on creating investment products that have at various times been considered at the vanguard, including real estate, mortgage and asset-backed transactions based in auto loans and equipment leases. He previously managed funds for the emir of Kuwait, and originally formed his intellectual property practice in partnership with Charles A. Koppelman, the music industry mogul who produced albums for Barbra Streisand and Garth Brooks. The company, then called CAK Universal Credit Corporation, became UCC after D’Loren bought out Koppelman in 2002 and changed its focus from entertainment figures to industries where contractually obligated royalties can similarly be quantified — in the case of fashion, most often through licensing.
When Oscar de la Renta Ltd. recently completed a deal to change its lenders, UCC was involved only in the capacity of introducing the designer company to the Connecticut-based Webster Bank, which offered a credit facility with more aggressive terms than those of its previous lender. Alex Bolen, ceo of Oscar de la Renta, stressed that the company is not considering a bond sale in the near future.
“Bob has been able to convince investors there is value in IP,” said Bolen. “He has an interesting role in the marketplace, putting investors in connection with people who need capital, getting someone to loan money against a brand name….but there is a risk in that you are borrowing money and you have to pay it back. If the assets are not valued properly, there will be someone who’s unhappy.”
There are also new investors that could attempt to have a say in company operations, pushing for the same kind of short-term results that executives at publicly traded apparel companies complain have become the expectation of Wall Street. While UCC’s deal with Bill Blass has been lauded as an instrument that allowed for an appropriate valuation of the Blass trademarks and an easier transition after the designer retired, the company has also been subject to criticism over its strategy of aggressive licensing and its approach to the money-losing runway collection, at times appearing to be willingly neglectful.
The company was sold to Michael Groveman, then the chief financial officer and currently its ceo, and Haresh Tharani, its denim licensee and now co-chairman, through the bond issue. Blass has since changed its designer three times, but new licensees for a bridge collection, dresses, watches and children’s wear have doubled volume and improved profitability.
“We’ve outperformed our expectations,” said Groveman, who has since joined UCC’s board. “Our deal is based on a business plan we presented to the bank, per se. What Bob’s company has done is brought an alternative to how financing deals get structured.”
D’Loren praised the financial performance of Blass in recent years, but, surprisingly, he criticized its creative approach and long-term brand strategy.
“It’s not what it was when Bill was there,” he said. “Directionally they’ve changed the company. Blass has grown dramatically. Its licensing has grown dramatically. Maybe the mix isn’t right. I don’t mean that in a negative way — on one hand you can look at it and say, ‘They’re more profitable, they’ve doubled their sales and volume, but is Blass what it was? No.’ Does it need to be what it was? It depends upon what your goals are.”
Having pegged his investment strategy on the value of designer names, it is not surprising he is a proponent of measures that would protect their equity for the long term.
“The acid test for us is if the consumer can define themselves with the product, then that’s probably something we don’t have to worry about competition from private label,” D’Loren said. “If we’re talking about a food brand, does anyone really care if they eat a Purdue chicken? Probably not. It’s a good brand, perhaps it’s cleaner and more golden in color, but if there’s another chicken selling for a dollar per pound less and Wal-Mart’s pushing it, they’re going to take Sam’s chicken. But in fashion, they’re going to make a different choice.”
