Retail Detail. Distressed Companies Facing Ominous Credit Climate

June 30, 2008 • Shopping


As the economic climate worsens the credit market is getting tighter, making the
fight for survival even more difficult for distressed retail companies.

recent weeks, reports WWD, it has become more apparent, both inside and
outside the apparel and retail industries, the ability of
companies to emerge from or resist bankruptcy is being adversely
affected by the higher costs and tighter availability of credit. Access
to money can no longer be depended upon to help companies endure tough
business conditions or critical cash shortfalls.

Kestenbaum, a partner at investment banking firm Triangle Capital, noted that, in the past several years, many of these
companies "would have been able to paper over their problems with
financing." Today they can’t.

Kestenbaum’s firm recently represented bankrupt Red
Envelope’s sale to Provide-Commerce, a Liberty Media subsidiary, for
about $16 million.

week, it was announced that Steve & Barry’s
University Sportswear
is up against increasingly difficult odds as it
scrambles to raise $30 million in financing. Some financial sources
said that even if it does line up the financing, it will face almost
prohibitively high interest rates on its loans.

Goody’s Family
Clothing Inc.
, which filed for Chapter 11 bankruptcy court protection
in early June, was able to get financing earlier in the year, but was
socked with interest rates in the 12 – 14% range.

Recent readings of the American public’s mood have done nothing to foster optimism about a turnaround in retail activity. The
Reuters/University of Michigan Surveys of Consumers placed consumer
confidence at a 28-year low on Friday.

"A pickup in the economy? No, not at all," James
Schaye, president and ceo of Hudson Capital Partners, a liquidator, said. "I
am very pessimistic, and I think this will last for at least the next
nine months. People will get accustomed to high energy prices, but
right now there is a genuine downturn in the economy and it’s
challenging for consumers because it’s hard to absorb $4 and $5 for a
gallon of gas. Even for those with large disposable incomes, when you
stand at the pump and watch that dial ringing up $80 and $90 for a tank
of gas, it may not be meaningful for the individual’s bottom line, but
it is from a psychological viewpoint."

So far retailers such as Goody’s, Whitehall
and Linens-N-Things, all of which were bought by private
equity firms within the last two years, have filed for Chapter 11
bankruptcy court protection.

retailer that is raising some eyebrows because of its losses is
Claire’s Stores Inc. The company on June 11 said lower sales and almost
$49 million in interest expense left it with a $35.6 million loss in
the first quarter.

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