Bain’s Gymboree $767.6 Million Term Loan Falls to 11-Month Low

Gymboree Corp.’s $767.6 million loan fell to the lowest in 11 months after the children’s retailer reported a loss and Moody’s Investors Service cut its rating.

The term debt due in February 2018 fell to 93.25 cents on the dollar from 97.44 cents the day before it reported earnings, according to prices compiled by Bloomberg. The level is the lowest since Jan. 4 for the company that was purchased by Bain Capital LLC in a 2010 leveraged buyout.

Moody’s on Dec. 18 reduced its grade on the company to Caa1 from B3, citing its high debt burden and “soft” sales amid declining operating margins. The company’s ratio of debt to earnings, or leverage, is expected to reach 9 times at the end of fiscal 2012, according to a Dec. 18 report by the ratings firm.

The rating “reflects the company’s weak execution, with profit margins falling each year since the LBO of the company in 2010 by affiliates of Bain Capital,” Moody’s analysts led by Scott Tuhy wrote in the report.

Bonds of the San Francisco-based company dropped to 91.25 cents on the dollar on Dec. 19, the lowest since Jan. 7, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The $371 million of notes due in December 2018 are yielding 11.5 percent.

Boston-based private-equity firm Bain, founded in 1984 by a group that included Mitt Romney, bought Gymboree in 2010 for $65.40 per share, according to a statement at the time.

Quarterly Sales

Net sales decreased 0.5 percent, to $309.8 million in the quarter, compared with $311.5 million in the comparable year-ago quarter, the company said in a Dec. 12 statement distributed by PR Newswire. Net loss for the quarter was $24.4 million compared to net income of $4.9 million for the same quarter last year.

The company has access to a $225 million asset-based revolver, of which $24 million was drawn at Nov. 2, according to a Dec. 16 regulatory filing. It also has $35.1 million of outstanding letters of credit.

Gymboree has about $1.14 billion of debt, all of which comes due in 2018, according to data compiled by Bloomberg.

We “remain confident in our ability to service our debt while still executing on our growth initiatives,” Chief Financial Officer Evan Price said on a Dec. 12 teleconference with investors and analysts to discuss third-quarter earnings. “We will continue to evaluate opportunities to use excess cash to further reduce debt levels.”

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