Aeropostale, a mall-based specialty retailer of casual apparel for young women and men, has signed a commitment letter with Sycamore Partners and its affiliates for a strategic partnership and $150 million in senior secured credit facilities.
The senior secured credit facilities consist of a five-year $100 million term loan facility and a ten-year $50 million term loan facility that includes a sourcing arrangement with MGF Sourcing, a portfolio company of Sycamore Partners and one of the largest apparel sourcing, manufacturing, and supply chain companies in the world. Formerly part of L Brands, MGF Sourcing was acquired by Sycamore Partners in November 2011.
Aeropostale (NYSE: ARO) is a primarily mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men through its Aeropostale stores and 4 to 12 year-old kids through its P.S. from Aeropostale stores. The company currently operates 864 Aeropostale stores in 50 states and Puerto Rico, 78 Aeropostale stores in Canada and 151 P.S. from Aeropostale stores in 31 states and Puerto Rico. In addition, through various licensing agreements, the company operates an additional 99 Aeropostale locations and one Aeropostale and P.S. from Aeropostale store. Aeropostale is headquartered in New York (www.aeropostale.com).
Under the terms of the commitment letter, Aeropostale will also issue convertible preferred stock to Sycamore Partners. The convertible preferred stock gives Sycamore Partners the right to acquire up to 5% of the company’s common stock at an exercise price of $7.25, the closing price of the company’s common stock on March 12, 2014. Combined with Sycamore Partners’ current ownership of Aeropostale’s outstanding common stock, Sycamore Partners’ ownership on an as-converted basis would increase to approximately 12.3% of the company’s outstanding common stock.
The sourcing partnership with MGF Sourcing will result in Aeropostale’s commitment to complete minimum merchandise purchases each year for ten years. As the company fulfills its minimum purchase requirements under the sourcing partnership, all amortization payments of the associated ten-year $50 million term loan facility will be fully rebated.
Stefan Kaluzny, a managing director at Sycamore Partners, will be joining Aeropostale’s Board of Directors upon the closing of this transaction. In addition to Mr. Kaluzny, Sycamore Partners will receive the right to appoint one additional member to the board, with a third independent appointee to be mutually agreed upon by Aeropostale and Sycamore Partners. The Board of Directors will increase from 11 to 12 members.
“As demonstrated by our firm’s significant existing equity ownership in Aeropostale, as well as this new strategic partnership and financing, we believe there is tremendous value in Aeropostale’s business. We look forward to partnering with the company’s other Board members and management team to help Aeropostale realize the full potential of its brand,” said Mr. Kaluzny.
Sycamore Partners invests in consumer and retail companies. The firm has more than $1 billion of capital under management and is based in New York (www.sycamorepartners.com).
“We look forward to working with Stefan and the Sycamore Partners team, and to the valuable retail and operational expertise they bring to Aeropostale. The terms of our commitment letter with Sycamore Partners are very attractive and provide us with significantly improved financial flexibility backed by their substantial knowledge of the retail industry,” said Thomas Johnson, Chief Executive Officer of Aeropostale.
© 2014 PEPD • Private Equity’s Leading News Magazine • 3-14-14