Claire’s Sweetens Terms for $800 Million Debt Exchange Plan

  • Change could increase amount of term loans for participants
  • Deal also adds $11.5 million to tween jeweler’s capital

Claire’s Stores Inc. improved its offer to swap almost $800 million of debt for new loans as the struggling tween-jewelry retail chain tries to buy more time for a turnaround.

Changes include increasing the amount of term loans that second-lien and unsecured noteholders could receive if they participate, the retailer said in a statement. The deal would also pay interest in kind instead of cash to affiliated holders, which include Apollo Global Management LLC, the company said. Additionally, the parent company will contribute about $11.5 million of cash to bolster the chain’s capital, the company said.

Claire’s has been saddled by debt it took on in a 2007 leveraged buyout by Apollo. The company lost more than $500 million over the past three years as mall traffic slowed, competition from online and specialty stores gained momentum, and a rising U.S. dollar crimped overseas sales and profits. Chief Executive Officer Ron Marshall is trying to complete the deal amid back-to-school shopping and the run-up to Halloween and Christmas, which the company has said were among its peak selling seasons in previous years.

Claire’s Chief Financial Officer J. Per Brodin declined to comment, and a representative for Apollo didn’t respond to a request for comment.

New Terms

Claire’s asked bondholders on Aug. 12 to swap three securities with $796.5 million of outstanding principal for as much as $230 million of new 9 percent term loans due 2021. The amended version calls for holders of second-lien and unsecured notes to receive additional term loans of up to $83.64 and $21.36, respectively, for every $1,000 of notes they tender if the offer isn’t fully subscribed.

Apollo and funds managed by its affiliates held about $242 million of subordinated notes issued by the retailer. While they originally said they wouldn’t participate in the exchange, they agreed to do a similar debt swap if participation falls short, according to the Aug. 12 statement. The new amendment says they’ll receive interest payments in kind, which typically involves issuing more debt securities or loans of the same type instead paying cash.

Marshall, a turnaround specialist, stepped in as CEO in May after the resignation of Beatrice Lafon, also known for her turnaround expertise. A member of the company’s board since 2007, he previously served brief terms as CEO of bookstore chain Borders Group Inc. and Great Atlantic & Pacific Tea Co., the supermarket chain known as A&P. Both companies ultimately filed for bankruptcy.

Junk Ratings

The offer is conditioned on at least $400 million of notes being tendered, and holders of about $300 million have signed up, according to the statement. Combined with participation by affiliated holders, this ensures the minimum threshold will be met, the company said. The deadline was extended to Sept. 12.

The company’s notes carry junk ratings and trade at distressed prices, with its $1.125 billion of 9 percent first-lien notes maturing 2019 quoted at 58 cents on the dollar on Aug. 24.

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