Refinancing deal keeps Claire's turnaround hopes alive

Dive Brief:

Claire’s Stores Inc. will be able to make a missed payment after all and lighten its debt load through the holidays thanks to a revised credit facility from HSBC Bank, the struggling teen accessories retailer said Tuesday.
The refinancing agreement allows Claire’s to make a $77 million bond interest payment that it missed on Sept. 15, and additionally complete a stalled bond exchange that will reduce its outstanding debt by approximately $396 million. Debt maturities will be extended, and Claire's estimates annual cash interest savings of approximately $24 million.
The new facility must be paid down by Dec. 31, with no further borrowings unless Claire’s meets certain conditions, many of which will be determined by HSBC, the retailer said.

Dive Insight:

Claire’s got a reprieve Tuesday thanks to this agreement, which will send it into the all-important holiday season in better position to make some crucial sales. The retailer is under the strain of heavy debt it acquired in a 2007 leveraged buyout by Apollo Global Management, exchanging three securities with $796.5 million of outstanding principal for as much as $230 million in 9% term loans due in 2021.

Headwinds faced by teen apparel retailers American Eagle, Abercrombie & Fitch and Aeropostale (the latter still under bankruptcy protection) seem to be also hitting Claire's, but its troubles are further exacerbated by its debt. Apollo took Claire's private in 2007 in a leveraged buyout valued at some $3.1 billion, and it already refinanced some debt earlier this year to delay interest payments.

Claire's saw same-store sales fall 5.1% in the first quarter, including a 0.8% decrease in the U.S. and a 12.7% decrease in Europe. First quarter net sales fell $20.3 million, or 6.4% year over year, to $299.6 million due to the closure of more than 150 stores this past year, the strong dollar, and decreased shipments to franchisees, the company said in May.

While Claire’s can take its eyes off its debt to focus on holiday sales, though, it may just be postponing the inevitable.

“This is a short-term solution that buys the company time — it potentially buys the company a holiday season,” Moody’s Investors Service credit analyst Charles O’Shea told Bloomberg. “Does this give the vendors enough comfort going forward that they can perform this holiday? That’s still an open question.”