DESIGNER HOLDINGS SELLS $120M IN DEBT TO FINANCE DKNY JEANSWEAR LICENSE
NEW YORK — Designer Holdings Ltd. has completed the sale of $120 million in preferred convertible securities to finance its recently signed license agreement for DKNY jeanswear.
The license brings another top designer brand to Designer Holdings, which has an established business with its licensed CK Calvin Klein jeanswear.
The convertible offering was originally planned to raise $100 million but strong demand resulted in increasing the number of shares sold to 2.4 million from 2 million. The securities will pay 6 percent and are convertible into Designer Holdings common shares at $23.52 a share. This represents a 23 percent premium over the price of Designer Holdings common at the time of the offering. On Friday, Designer Holdings common closed at 18 1/8, down 1 1/8, on the New York Stock Exchange.
The proceeds will be used to repay any outstanding balance under Designer Holdings’ revolving credit line. The company will then reborrow funds under the line to finance the cost of the DKNY license and to develop the DKNY jeans business. As of June 30, the outstanding balance on Designer Holdings revolving credit was $43.3 million.
On Sept. 27, Designer Holdings signed an agreement with Donna Karan International for a 30-year license to produce and sell DKNY jeans. Designer Holdings has already paid $6 million to reimburse Donna Karan International for expenses related to the DKNY label and agreed to pay $54 million over a four-year period. Starting June 1, Designer Holdings will pay Donna Karan royalties of 7 percent of sales plus a 2 percent administrative fee on international sales.
The Designer Holdings convertible securities fall somewhere between preferred stock and convertible debt.
Each security represents an interest in a trust that holds convertible bonds of Designer Holdings that are due in 2016.
The issue was underwritten by Merrill Lynch & Co. and Morgan Stanley & Co. Kmart raised $1 billion with a similar issue last June.