Claire’s Gets Waiver Amid Advanced Talks to Push Debt Swap

  • Lender gives a break on covenant in European credit line
  • Consents needed to get cash and proceed with bond exchange

Claire’s Stores Inc., the retailer owned by Apollo Global Management LLC, said it’s now in “advanced discussions” with a key lender about allowing its stalled recovery plan to proceed after missing a debt payment.

The lender waived declaring a default as the tween jewelry chain continues to negotiate changes to its Europe credit facility, according to a regulatory filing Monday. The accord with the unspecified lender would include consents to complete a debt swap and obtain cash, Claire’s said.

Claire’s also received a waiver from lenders to its U.S. credit line, assuming the company is able to complete the pending exchange offer, according to the filing. Without the waivers, the retailer would have been in violation of covenants governing its fixed-charge cover ratio under the European credit facility and the total net secured leverage ratio under the U.S. credit line as of July 30, Claire’s said.

The company missed $77 million of interest payments due Sept. 15 on some of its notes, citing the European lender’s refusal to approve the pending debt swap, and said it would use a 30-day grace period to find a solution. Claire’s has been saddled by debt it took on in Apollo’s 2007 leveraged buyout. The debt exchange would reduce that pressure and give Chief Executive Officer Ron Marshall time to engineer a recovery.

Representatives for Claire’s, based in Hoffman Estates, Illinois, didn’t immediately respond to requests for comment. Claire’s affirmed in the latest filing that it’s still paying employees, suppliers and trade creditors.

Shoppers Drop

The chain has suffered as competition from online and specialty stores lured shoppers away, and a rising U.S. dollar crimped overseas sales and profits. A slowdown in shopping-center traffic has hastened the bankruptcy of retailers over the past year including Aeropostale Inc. and Pacific Sunwear of California Inc. Other chains, such as J. Crew Group Inc. and Claire’s, have delivered double-digit losses for bondholders.

The debt exchange, which covers almost $800 million of existing securities, needs at least $400 million tendered to become effective. Claire’s has said it has commitments from outside investors for $333 million, and affiliated investors including Apollo have agreed to make up any shortfall by exchanging their holdings. Based on results through Sept. 16, $575 million of debt will be exchanged for about $179 million of new term loans, Claire’s said.

The $1.125 billion of 9 percent first-lien notes maturing 2019 traded at 59.5 cents on the dollar on Sept. 16, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes lost 24 cents in the past 12 months.

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