Business

JPM, Goldman Sachs on hook in Rue 21 buyout

Meet Wall Street’s latest teen-fashion victims: Jamie Dimon and Lloyd Blankfein.

The CEOs of JPMorgan and Goldman Sachs, respectively, have been hung out to dry as the banks scramble to finance a $1.1 billion buyout of teen retailer Rue21, The Post has learned.

Prospective lenders have been rattled as a disappointing back-to-school season crushed profits at the retailer, which has agreed to be acquired by private-equity firm Apax Partners.

JPMorgan, Goldman and Bank of America are on the hook for tens of millions of dollars in potential losses on the financing commitments they made to back the buyout, sources said.

“The banks can’t get out of the deal,” a source said, explaining that the firms guaranteed financing for the takeover regardless of whether they could sell the debt. “It’s not fun.”

The banks are also poised to forfeit the lucrative fees they hoped to reap as advisers on the deal .

“Goldman has some egg on its face, and some people are sort of giggling about it,” said one insider.

The situation is also an embarrassment for Apax — which can’t back out of the deal as long as financing is available — even though some investors have expressed concerns about the high price and the retailer’s iffy outlook.

Bank officials and Apax declined comment.

Lately, teen chains Abercrombie & Fitch, Aeropostale and American Eagle Outfitters have seen their shares hammered on weak results.

That’s making the $42-a-share deal for Rue21 look pricey at 11 times expected $100 million of earnings before interest, taxes, depreciation and amortization. When the deal was inked in May, it was valued at eight times Ebitda. Shares closed down 41 cents at $40.58.

It’s the banks that face the near-term hit. This spring, they agreed to fund the acquisition with a package of debt and loans worth $858 million at a blended interest rate of as much as 8 percent, sources said.

While that’s a relatively steep rate, the bumpy retail climate has forced lending rates to even higher levels, exposing the banks to holding bonds and loans that are expected to plummet in value, sources said.

This week, an effort to raise debt with rates north of 9 percent failed, said sources. The banks will try again before the deal closes Oct. 14.

On Thursday, Rue21 said quarterly net income plunged 88 percent to $1.1 million. While sales rose 13.5 percent, that was only because the company continued to open stores at a feverish pace.