Shares of Joe’s Jeans Inc. declined 21.2 percent to close at 75 cents in Nasdaq trading, after the company reported that it had fallen out of compliance with the profit requirements of its Garrison Loan Agency term loan and was seeking waivers and adjustments.
This story first appeared in the November 17, 2014 issue of WWD. Subscribe Today.
The company said in a filing with the Securities and Exchange Commission that, in the 12 months ended Sept. 30, it had failed to meet the covenants for earnings before interest, taxes, depreciation and amortization of the term loan reached with Garrison one year earlier.
With the default, Garrison demanded payment of outstanding interest, and the interest rate on the financing was elevated to 14 percent from 12 percent.
There was $59.9 million outstanding under the existing agreement as of Sept. 30. When Joe’s reported results for its third quarter and nine months in October, the company said it was in compliance with all covenant provisions of the Garrison loan as of Aug. 31.
The default event automatically put Joe’s in violation of its revolving credit and factoring facility with CIT Commercial Services. Under that agreement, there is $33.9 million outstanding and $13.7 million available under the factoring facility.
Joe’s said it is negotiating with both lenders and seeking amendments to existing agreements and waivers on the dual defaults. If unsuccessful, payment terms could accelerate, which, Joe’s said, would have “a material adverse effect on our liquidity, financial condition and results of operations and could cause us to become bankrupt or insolvent if not resolved.”
Joe’s acquired Hudson Jeans for about $97.6 million in October 2013, and a portion of the proceeds came from the Garrison loan.
Joe’s net income for the first nine months of the current fiscal year was $437,000 versus a net loss of $5.5 million in the first three quarters of 2013. The loss, however, included an $8.7 million pretax charge to cover a onetime payment of $9.2 million to creative director Joe Dahan to replace earn-out allowances tied to the company’s gross profit.