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The Children’s Place, which has been on the hunt for emergency funds for weeks, has garnered financing from its new owners.
Following through on its pledge to shore up the apparel retailer, Mithaq Capital has agreed to provide $78.6 million in interest-free, unsecured and subordinated term loans to strengthen its liquidity position. Mithaq provided an initial tranche of $30 million on Thursday, and will provide the remainder on or before March 29, subject to certain conditions, the companies said in a press release. In light of this, the retailer said it expects to be able to close its previously announced $130 million term loan from Gordon Brothers next month.
A potential wrinkle is also likely to be smoothed out: While Mithaq’s acquisition of a majority stake in The Children’s Place had amounted to a change of control that triggered a default under the credit agreement with its bank lenders, the parties have agreed to a permanent waiver provided Mithaq’s financing goes through.
Mithaq’s ownership stake and financing deal have come with a board shakeup. Four people nominated by the Saudia Arabia-based investment firm will also join the retailer’s board, including one who will become chair, per the release. Turki Saleh A. AlRajhi, Muhammad Asif Seemab, Muhammad Umair and Hussan Arshad will replace directors Elizabeth Boland, Alicia Enciso, Katherine Kountze and Wesley McDonald, who have resigned.
AlRajhi has been appointed chairman-elect and is sharing duties with Norman Matthews during a transition period. A new “Efficiency and Optimization Committee,” which includes Seemab, Umair and The Children’s Place CEO Jane Elfers, will identify and recommend ways to boost competitiveness and cost management, per the release.
The new financing isn’t coming in time to avert a hit to the retailer’s supply chain. Citing delayed payments, some vendors and service providers have halted or plan to withhold goods or services as a result of delayed payments. The Children’s Place said it’s in talks with them and plans to use its new financing to address overdue accounts.
It remains to be seen how much the reprieve granted by The Children’s Place’s new owners can forestall what some analysts see as an inevitable decline in U.S. children’s apparel sales. A falling U.S. birth rate, challenges to discretionary spending and a rise in e-commerce are all undermining its sales, profit and market share, UBS analyst led by Jay Sole warned last year. Children’s apparel sales in North America are expected to rise just 1%, down from the average 2.3% annual growth of the last decade, according to UBS research.
The retailer had already accelerated its store closure plans in the past couple of years, shuttering more than 250 locations. Last year the retailer also cut its salaried workforce by 17%.
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Daphne Howland, Khareem Sudlow
