- Purchases were designed to help preserve firm’s investment
- Private equity owner said to have bought ’17 bonds at discount
Claire’s Stores Inc. owner Apollo Global Management LLC is buying up the retailer’s bonds due next year, in a move that gives the company more time to turn around its ailing business, according to people with knowledge of the matter.
The private equity firm, which together with Claire’s already owns 90 percent of the chain’s 10.5 percent 2017 bonds after a debt exchange deal struck this month, has been seeking to purchase the remainder of the bonds, said one of the people. The firm has been buying at a discount in the open market, said the person, who asked not to be identified because the matter is private.
Claire’s has struggled to tame its debt burden since its 2007 leveraged buyout by Apollo, which saw the company take on $3.1 billion of obligations. The tween jewelry chain lost about $514 million over the past three years as mall traffic declined, new competition intensified from online and specialty stores, and a rising U.S. dollar crimped overseas sales and profits.
By buying the company more time to improve its earnings, Apollo gives itself a better chance of preserving its investment, said one of the people. After next year, Claire’s doesn’t have any maturities until 2019, according to data compiled by Bloomberg.
Representatives for Apollo and Claire’s didn’t immediately respond to requests for comment.
“Buying up the debt is better than to have the company go bankrupt,” said Steven Ruggiero, head of research at RW Pressprich & Co.
The 2017 bonds last changed hands at 58.9 cents on the dollar on Tuesday in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The data is based on trades that were below $1 million.
Apollo’s purchase comes just before the retailer’s deadline for an interest payment on the bonds. After the exchange deal, which allows the company to pay interest in kind on $174.4 million of the bonds next month, Claire’s would owe $4.5 million of interest on about $85 million of bonds outstanding on June 1, one of the people said. Claire’s had just $49 million in cash on its books as of April 30, Bloomberg data show.
That’s why Ruggiero believes that Claire’s may need to take more drastic steps in the near future.
“A broader Claire’s debt exchange is needed sooner rather than later,” he said. “Liquidity appears tight going into the summer buying season.”
Executives on the company’s March 30 earnings call detailed initiatives to make the company “cool and front of mind” with expanded gift items and licenses for Shopkins, Frozen and Minions merchandise.
The company named Ron Marshall as chief executive officer on May 5, replacing Beatrice Lafon, who resigned after two years. Marshall, a Claire’s director since 2007, served as CEO of the Great Atlantic & Pacific Tea Co. supermarket chain and of bookseller Borders Group Inc. Both are now defunct.