Claire’s Gets Cash to Pay Bonds and Buy Itself a Holiday Season

Updated on
  • Cash spigots reopen after European credit facility is revised
  • Teen jewelery chain must satisfy HSBC again on Dec. 31

Claire’s Stores Inc. gained fresh cash to pay creditors and support sales through the crucial holiday season, but the tween jewelry chain owned by Apollo Global Management LLC may have deferred rather than defused its predicament.

HSBC Bank Plc agreed to revise Claire’s European credit facility, Claire’s said in a statement Tuesday. That allows Claire’s to make good on a $77 million bond interest payment that it missed on Sept. 15, and complete a stalled bond swap that will ease its crushing debt burden, according to the statement.

The new credit package must be paid down to zero by Dec. 31, with no further borrowings unless Claire’s meets certain conditions, “some of which are to be determined by HSBC,” the retailer said. That raises the prospect of another round of negotiations for the struggling chain, which posted a $70.8 million first-half loss.

“This is a short-term solution that buys the company time -- it potentially buys the company a holiday season,” said Charles O’Shea, a credit analyst at Moody’s Investors Service, who sees operational as well as financial hurdles. “Does this give the vendors enough comfort going forward that they can perform this holiday? That’s still an open question.”

Representatives for Hoffman Estates, Illinois-based Claire’s and New York-based Apollo didn’t immediately respond to requests for comment.

Debt Burden

Claire’s has been saddled by debt it took on in Apollo’s 2007 leveraged buyout. Chief Executive Officer Ron Marshall is trying to engineer a recovery amid the run-up to Halloween and Christmas, which have been among Claire’s biggest sales drivers in past years. The chain suffered as competition from online and specialty stores lured shoppers, a trend that hastened the bankruptcy of retailers including Aeropostale Inc. and Pacific Sunwear of California Inc.

A key component of the turnaround plan is the bond exchange, designed to cut total debt and interest and extend maturities to buy time for a recovery. The exchange offer, which covered almost $800 million of existing securities, stalled because it needed the bank’s approval.

Descending Debt

Claire’s said in the statement the offer wasn’t fully subscribed when it expired, with holders of only $332.9 million signed up. At least $400 million was needed for the swap to become effective. As promised, affiliates of Apollo and Claire’s Inc. closed the gap by contributing some of their holdings -- $183.6 million from Apollo and $58.7 million from Claire’s.

All told, this will reduce debt by about $396 million and save about $24 million annually in interest, Claire’s said. Debt had stood at about $2.53 billion, Claire’s said on Sept. 15.

With the financial deals done, Claire’s now needs customers to come through. Sales fell 8.8 percent to $317.2 million in the fiscal second quarter from a year earlier.

“They’re in a tough spot without question,” O’Shea said, citing online competition. “Girls still like to go to malls -- is that enough? Or is it easier for the girls to sit in front of some sort of a device and order product online from myriad other companies. My sense is they’re not winning that battle.”

— With assistance by Jodi Xu Klein

(Updates with comment from analyst starting in the fourth paragraph.)
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