Lazard steps in to restructure Nine West Holdings' debt

Dive Brief:

Nine West Holdings, Inc. on Monday announced that it has retained investment bank Lazard to evaluate a long-term capital structure solution, according to a company press release.
The company emphasized in a press release that it has no near-term debt maturities (until 2019), is in compliance with the indentures and other agreements governing its indebtedness for borrowed money, and has ample liquidity ($160 million as of Dec. 31 last year) to continue to operate in the ordinary course.
In February, Moody's Investors Services included Nine West in a list of "retailers at risk," citing the company's "weak operating performance and very high debt and leverage burden."

Dive Insight:

Nine West made it through the holidays thanks to a deal with its senior lenders, which last October agreed to revise a $275 million credit facility by removing a debt covenant that limited its access to credit. Under that agreement, the financing was split into a $250 million credit line and a $25 million term loan.

But the company, which Moody's noted earlier this year is particularly challenged by the difficulties in its department store channel, continues to be confounded by its debt issues.

"At current and pro forma performance levels, the company's capital structure is unsustainable and its probability of default, including the potential for a distressed exchange, is high," according to Moody's February notice. "The rating also reflects the company's high exposure to the challenged moderate price department store sector, which we believe will make revenue growth difficult. The company's retail business, which accounts for a meaningful portion of revenues, has seen negative trends for a number of years and has yet to demonstrate revenue and earnings stability."

Recent moves to stabilize its business and reduce operating expenses should partly offset those challenges, Moody's also said, adding that its "stable" rating for Nine West took into consideration the fact that the company's near term liquidity "remains adequate, supported by ample revolver availability."

The company, which depends on direct retail sales as well as wholesale, is losing market share amid softening apparel sales and competition from e-commerce players. Sycamore acquired it in 2014 for $2.2 billion, along with 34 other Jones Group brands, including Anne Klein, Easy Spirit, Bandolino, Enzo Angiolini, Givenchy, Gloria Vanderbilt, l.e.i., Jessica Simpson, Jones New York, Kasper, Stuart Weitzman and Kurt Geiger.

The firm’s investments are heavily focused on retail and consumer brands, many of which have struggled lately as sales shift online, consumers remain careful about spending and retailers scramble to adapt. Most recently Sycamore tussled with teen apparel retailer Aeropostale, which like Nine West had been weighed down with debt and failed to keep up with apparel trends. Sycamore leveraged its $150 million loan to Aeropostale in its bid for that retailer, though another group of investors led by landlords and brand companies, won the auction at bankruptcy court in September.