Barneys Rescued in a Debt-for-Equity Swap

Barneys New York flagship on Madison Avenue

New York—Something of a state of limbo ended Monday for Barneys New York. The luxury specialty store, which has suffered under the weight of a $590 million debt load, was acquired by Perry Capital and Yucaipa Cos. in a debt-for-equity swap.

Perry Capital partnered with Yucaipa, which is owned by supermarket billionaire Ron Burkle, to take over majority control from Istithmar World PJSC. The transaction will reduce Barneys’ debt to $50 million and prevent the retailer from sliding into bankruptcy.

“This agreement provides us with increased free cash flow that will be used to revitalize our stores, invest in Barneys.com and further enhance our customer experience at a time when our operational financial performance is very strong,” said Barneys CEO Mark Lee said.

Although terms of the agreement and precisely which company holds the bigger stake wasn’t released, Richard Perry, president of Perry Capital, said he would be chairman of Barneys’ board and his company would have three more seats on the board. Burkle, Lee and Istithmar will each have a seat, too.

‘A Long-Term Investment’

“This is a long-term investment for us,” Perry said. “I think it is extraordinary what Mark has done.”

Yucaipa sold the debt it owned and used some of the proceeds to take a minority equity stake in the company, said Frank Quintero, a spokesperson. “We will have a voice in the company, but we’re happy with Perry’s control position here.”

Istithmar World, the investment arm of the Dubai government, originally bought Barneys for $942.3 million in 2007 from Jones Group Inc. But as when the recession hit and sales slowed, Istithmar sought ways of keeping the company afloat as it debt soared.

In 2010, Burkle made an offer to take a controlling stake in Barneys, by offering $50 million for 80% of the company’s common stock. That deal never materialized.

Meanwhile, under Lee’s direction, Barneys has seen improved operations with comparable store sales up at a double-digit rate and earnings before interest, taxes, depreciation and amortization jumping 40%

Retail analysts said the deal is a win for Barneys and assures that the company will continue especially as the luxury market recovers.

“It sounds like they are right-sizing the balance sheet,” said Steven Dennis of SageBerry Consulting LLC in Dallas. “It’s a good time to invest in luxury since the market is bouncing back, but it is still a pretty mature market.”

 

 

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