Claire’s Says Debt-Swap Tally Delays Filing of Quarterly ReportEmma Orr and Lauren Coleman-Lochner
Tween retailer gauges impact on liquidity and capital
Company previously cited commitments to complete bond exchange
Claire’s Stores Inc. delayed filing its quarterly report while it tallies the results of a bond swap designed to buy time for a turnaround of the troubled tween jewelry chain.
The retailer cited the impact of the pending exchange on its liquidity and capital resources, “as well as other aspects of its business and operations,” in a regulatory filing Wednesday. The report will be completed “as soon as practicable,” Claire’s said.
Claire’s has been saddled by debt it took on in a 2007 leveraged buyout by Apollo Global Management LLC. The chain 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 debt swap amid the run-up to Halloween and Christmas, which were among Claire’s peak selling seasons in previous years.
The debt exchange, which covers almost $800 million of existing securities, needs at least $400 million tendered to become effective. Claire’s announced two 24-hour extensions in the past two days to accommodate a confidential offer tied to the deal, with expiration now set for the end of Wednesday. The company didn’t explain the nature of the offer and declined via e-mail to elaborate beyond the filing.
Claire’s said it had commitments from outside investors to swap $333 million of their old securities for new notes. Affiliated investors including Apollo have agreed to make up any shortfall by exchanging their holdings in the Hoffman Estates, Illinois-based company.
Some investors hesitated to participate as they puzzled over parts of the plan, which was revised in August and includes giving holders term loans tied to a new subsidiary called CLSIP. The unit would hold unspecified intellectual property assets and grant Claire’s exclusive use, in return for payments of $12 million a year. Those funds would pay interest on the term loans.
Investors have questions about how the company was able to incur the new debt to fund the exchange offer, according to Anthony Canale, head of high-yield research at Covenant Review, a New York-based service that tracks bond terms. They’ve also queried how the company was able to move at least $130 million of assets to CLSIP, and how the new debt was able to get priority ahead of the existing first-lien bonds at some other subsidiaries, he said.