Fifth & Pacific Swaps Jump Most in Year After Forecast Reduction

The cost to guard against losses on the debt of Fifth & Pacific Cos. (FNP) jumped the most since last October, after the fashion retailer cut its profit forecast because of sagging sales of its Juicy Couture brand.

Credit-default swaps tied to Fifth & Pacific rose 54.8 basis points to 369.8 basis points as of 2:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That’s the biggest intraday climb since swaps linked to the New York-based company increased 66.9 basis points on a closing basis Oct. 4, 2011, CMA prices show.

The company, which owns fashion labels including Kate Spade and Lucky Brand, said adjusted earnings before interest, taxes, depreciation and amortization may be as much as $115 million this year, down from an earlier $140 million forecast. “Significant shortfalls in full-price sell-through rates” drove Juicy Couture sales down one percent in the most recent quarter, Chief Executive Officer Bill McComb said in a statement.

Banks, hedge funds and other money managers had bought and sold credit swaps that protect against a default on a net $809.7 million of the New York-based company’s obligations as of Sept. 21, according to the Depository Trust & Clearing Corp., which runs a central repository for the market.

The level of Fifth & Pacific credit swaps, which typically rise as investor confidence deteriorates and fall as it improves, means investors would have to pay $369,800 annually to protect $10 million of the company’s debt for five years. Credit swaps pay the buyer face value of the defaulted debt.

To contact the reporter on this story: Peter Rawlings in New York at prawlings@bloomberg.net

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

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