When it rains it pours. Buyout firm Apollo Management LP suffered a blow when Linens 'n Things Inc.
filed for bankruptcy earlier in the year. Now Moody's Investors Service has downgraded another Apollo retail acquisition, Claire's Stores Inc.,
a jewelry and accessory retailer. Moody's dropped the rating for Claire's from B3 to Caa1 because of weak results over
the last two quarters. Linens suffered the same downgrade before it filed.
That doesn't necessarily mean Claire's, which Apollo bought
in a $3.1 billion leveraged buyout near the top of the market in May
2007, is headed toward court. For the 12 months ending May 3, Claire's
booked $248 million of
adjusted Ebitda, or 8.8 times its debt level, Moody's said. The
Pembroke Pines, Fla., company appears to have enough liquidity under
its revolver to fund its free cash deficit over 12 months, but a
further decline in operating performance could "rapidly absorb this
availability," Moody's said. Claire's also has the right to pay down
debt with more debt in lieu of cash -- a so-called PIK toggle -- which
should give it some breathing room. John Morris took a comprehensive look at Apollo's portfolio, including Claire's, in the Juy 21 edition of The Deal newsweekly.
Claire's is clearly a victim of the larger economic
slump, which has hit retail chains particularly hard. Retail
bankruptcies are rising. Several other PE-owned retailers have filed
for bankruptcy this year, including Steve & Barry's LLC and earlier
in the week, Hayward, Calif.-based department store Mervyn's LLC. - Matthew Wurtzel
See related story about Mervyn's from Dealscape
See feature story about Apollo's portfolio from The Deal newsweekly
