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.
“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