Corporate Finance

Joe’s Jeans in Talks With Lenders After Default

The designer denim company took on $110 million in loans last year to acquire Hudson Clothing Holdings.
Matthew HellerNovember 24, 2014
Joe’s Jeans in Talks With Lenders After Default

Joe’s Jeans, which has been struggling with dwindling demand for designer denim, has disclosed that it is in talks with lenders after defaulting on its nearly $94 million in debt.

The default was triggered by the apparel maker’s failure to comply with the EBITDA covenant on its term loan as of Sept. 30, Joe’s Jeans said in a regulatory filing. The company owes $59.9 million on the loan from Garrison Loan Service Agency. The loan is set to mature on Sept. 30, 2018.

As a result of the default, the interest rate on the loan has increased to 14% from 12% and Joe’s Jeans also defaulted on its revolving credit agreement and factoring facility with CIT Commercial Services. It owed CIT $33.9 million as of Sept. 30.

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“We are currently in discussions with [Garrison] and CIT regarding a resolution to the defaults, including amendments to the existing agreements and waivers for the defaults,” Joe’s Jeans said, noting that, unless it obtains a waiver, its lenders are entitled to “accelerate the outstanding amounts under those agreement[s].”

“Any such acceleration under our credit facilities would have a material adverse effect on our liquidity, financial condition and results of operations, and could cause us to become bankrupt or insolvent, if not resolved,” it added.

Joe’s Jeans took on $110 million in loans in September 2013 when it closed its $94.1 million acquisition of Hudson Clothing Holdings. The deal was supposed to add a younger consumer to Joe’s Jeans designer denim mix, The Deal reports, but as demand for designer denim continued to fade, the company ended up being saddled with a lot of debt.

Part of the Hudson’s deal was financed with $32 million of unsecured convertible bonds with no covenants, but, according to Seeking Alpha, most of the money came from the high-interest $60 million loan from Garrison. The financing from CIT was for working capital.

Since the default was disclosed, Joe’s Jeans stock has fallen about 30% amid investor concerns that it would have to file bankruptcy.

Source: The Deal