Like a fashion-crazed shopper with maxed out credit cards, Barneys New York is having some liquidity issues.
Istithmar — the Dubai-based investment firm that took the luxury icon private in 2007 for a whopping $942 million — was forced to inject millions of dollars into the retailer this spring to prop up its struggling stores, sources told The Post.
While the exact amount of assistance could not be determined, it was significantly less than the $20 million Istithmar pumped in last year. The cash infusion was needed this spring because, sources said, privately held Barneys continues to lose money.
The red ink is flowing despite fresh demand for designer shoes, handbags and dresses, which have helped Barneys’ sales and margins rebound this year following the luxury doldrums of 2009. Worries about Barneys’ finances prompted a downbeat outlook from Standard & Poor’s yesterday — even as rival luxury retailer Neiman Marcus got an upgrade from another credit-rating agency.
“We remain very concerned that Barneys’ liquidity position is likely to remain weak and the company may need additional support from the sponsor for on-going operations,” S&P analyst David Kuntz wrote in a research report.
A key problem is the giant, half billion dollar junk-rated debt load that Barneys took on with the Istithmar buyout. Kuntz estimates that Barneys’ total liabilities are more than 25 times the company’s adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA — a closely watched measure of liquidity.
The debt load is so huge that Barneys’ adjusted EBITDA covers only half of the interest payments on the debt despite healthy sales gains in recent months, S&P calculates. While the firm anticipates Istithmar will continue to support Barneys this year, the company’s value took a big hit in the global credit crisis, and “the balance sheet likely needs to be restructured,” according to the firm.
That raises the possibility that Barneys’ two key creditors — Los Angeles billionaire Ronald Burkle and New York hedge-fund tycoon Richard Perry — might try to assert control over the company.
Burkle — who was rebuffed by Istithmar when he offered to buy a controlling equity stake late last year — has recently been a passive and “happy” debtholder, according to one source. “The value of the debt has been increasing,” the source noted.
Nevertheless, sources said Burkle is itching to take control of Barneys, which he thinks is underfunded and which has gone without a CEO for two years. While Istithmar recently has bankrolled the addition of a few stores, the chain is still “much smaller than its primary competitors, Neiman Marcus and Saks Fifth Avenue,” S&P’s Kuntz noted.
While S&P lowered its estimate of what Barneys’ creditors would recover in a prospective bankruptcy, Moody’s upgraded its rating on Neiman Marcus’ debt, citing “good liquidity, solid competitive position in the luxury market, and solid execution ability.”
Although Neiman Marcus’ debt load dwarfs its cash flow, the company hasn’t drawn down on a $600 million revolving credit line, Moody’s noted.