Liz Claiborne (NYSE:LIZ)
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5 Years : From Oct 2012 to Oct 2017
NEW YORK (Dow Jones)--Liz Claiborne Inc. (LIZ) has hired turnaround firm Alvarez & Marsal Inc., to help the ailing women's apparel retailer repair its operations.
Alvarez & Marsal is looking into improving the retailer's working capital, said Steven Cohn, managing director at Alvarez & Marsal, who is overseeing the effort.
Alvarez & Marsal is "reviewing receivables, payables, that sort of thing," Cohn said. "We're seeing if we can help them improve collections and inventories."
Cohn said the assignment is expected to be a "short term" one.
Raymond Felton, who focuses on securities law as chairman of the corporate practice at Greenbaum, Rowe, Smith & Davis in Woodbridge, N.J., has no direct knowledge of the circumstances at Liz Claiborne. In a general observation, he noted that hiring a restructuring firm "not infrequently is the first step towards a bankruptcy filing."
Liz Claiborne is up against a tough economic environment while carrying a heavy debt load. It is under pressure to return to profitability and generate greater cash or run afoul of the lending agreement affecting its up to $600 million revolving credit facility, said Chris Chaice, analyst at Covenant Review, a fixed-income research firm.
If Liz Claiborne does not return to profitability sometime next year, the company does not expect to be in compliance with the loan's terms, according to its latest 10-Q.
This could trigger all sorts of repercussions including the lenders asking for the money back immediately, or cutting Liz off from further tapping the line, the 10-Q states.
Liz Claiborne has been successful at renegotiating this line twice so far this year, but there is no telling if its lenders are running out of patience.
If Liz Claiborne does not come to terms with its lenders in regard to this loan, and if it does default, the lenders could ask for their money back and this could cause a domino effect, giving the holders of other Liz Claiborne debt the right to call in their bonds, Chaice said.
Alvarez & Marsal's Web site says the firm specializes in turnaround management, corporate restructuring and performance improvement for companies and stakeholders.
Liz Claiborne has been struggling throughout the recession because of the poor economy and its own missteps.
In early August, the company posted a wider second-quarter loss on falling revenue and flat margins, and some analysts said it will be tough for Liz Claiborne to turn around its business quickly.
On the heels of that loss, the company said it plans $100 million in cuts and is looking at shifting its relationships with department stores, which have been ordering less of its apparel.
A recovery won't come right away; Liz still expects comparable-stores sales to drop 15% to 25% in the third quarter and the fourth quarter's performance is up in the air. Liz Claiborne executives have said the company has enough money right now and expects to continue paying down debt this year.
After the second-quarter loss, Standard & Poor's Ratings Services cut its credit ratings on Liz Claiborne deeper into junk territory and warned that the apparel maker could violate certain debt covenants if it isn't successful in turning around it operations.
The ratings cut from S&P came less than a week after Moody's lowered its credit rating on the owner of such brands as Lucky, Juicy Couture, Kate Spade and the Isaac Mizrahi-designed Liz namesake line.
-By Karen Talley, Dow Jones Newswires; firstname.lastname@example.org; 212-416-2196