Liz Claiborne Markets Bonds to Fund Euro-Note Tender Offer

Liz Claiborne Inc. (LIZ), the maker of Lucky Brand and Juicy Couture apparel, plans to sell $200 million of debt in dollars to fund a tender offer for euro- denominated securities.

The apparel maker is marketing senior secured notes due 2019, according to a statement today from the New York-based company. Proceeds may be used to fund a tender offer for up to 155 million euros ($218 million) of the New York-based company’s outstanding 350 million euro 5 percent debt due July 2013 and for general corporate purposes.

Liz Claiborne said in a March 8 statement that it would offer bondholders 96 percent of the euro notes’ principal plus accrued interest if they tendered by March 22. The announcement prompted Standard & Poor’s to reduce Liz Claiborne’s corporate credit rating to CC from B- and the rating on the euro bonds to CC from CCC+. The clothing maker said in a March 24 statement that 117.9 million euros of debt had been offered by the early deadline.

“We assess the tender offer as distressed and the pending transaction as tantamount to a default on the 5% notes,” S&P analysts led by Jeffrey Burian said in a note dated March 11. “We believe there is no contractual default, nor any cross- default to other debt obligations.”

The company’s corporate credit rating is likely to be restored once the tender offer is finished on April 7, said Liz Claiborne Chief Financial Officer Andrew Warren in a March 11 statement.

‘Technical Action’

“S&P’s downgrade is not a corporate rating downgrade in the traditional sense, but rather a required short-term technical action pertaining to the specific terms and conditions of our tender offer refinancing,” said Warren. “Our liquidity remains solid and Liz Claiborne Inc. will continue to do business as usual.”

The downgrade is unlikely to affect the company’s ability to sell the dollar-denominated notes being marketed today, said James Goldstein, an analyst with CreditSights Inc. in New York.

“It’s opportunistic to push out to seven-, eight-year maturity,” he said in a telephone interview. “Things are tightening up again and there’s a demand for yield out there.”

Spreads on high-yield, high-risk, or junk, debt declined 37 basis points to 479 basis points on March 25 from the monthly high of 516 basis points on March 16, according to Bank of America Merrill Lynch index data. A basis point is 0.01 percentage point.

The euro notes traded today at 91.875 percent of face value and yielded 9.1 percent, according to data compiled by Bloomberg.

New Ratings

S&P reiterated its earlier ratings on Liz Claiborne’s euro bonds and corporate credit and assigned a B- grade to the new notes, according to a statement today.

Moody’s Investors Service affirmed Liz Claiborne’s corporate family rating at B3 in a statement today and assigned a B2 grade to the notes being marketed. The ratings company said the outlook for the retailer is “stable.”

“The company’s credit metrics will continue to recover in the near term as it reduces debt and as operating performance improves while maintaining good overall liquidity,” Moody’s analysts Scott Tuhy and Kendra Smith in New York wrote in a statement today.

Bank of America Corp., JPMorgan Chase & Co., SunTrust Banks Inc., and Wells Fargo & Co. are managing the sale, said a person familiar with the transaction, who declined to be identified because terms aren’t set.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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