Two banks to cut $265m in credit for struggling Talbots
But 3d lender grants firm $18m extension
A pair of lenders has notified Talbots Inc. they will no longer provide credit totaling $265 million to the financially troubled women's clothing retailer, even as Talbots negotiated an extension of a smaller $18 million line of credit with a third lender, according to a company filing with the Securities and Exchange Commission yesterday.
The disclosure, coming as borrowing difficulties and a slowdown in consumer spending have squeezed other US retailers, raised questions about the ability of Talbots to continue borrowing money, purchasing inventory, and paying vendors. Officials at the Hingham company couldn't be reached for comment late yesterday.
Talbots last month posted a $171 million first-quarter loss on a sales decline of nearly 8 percent, as it scrambled to close stores it has opened for men and children and wrote down the value of goodwill associated with its $518 million acquisition of J. Jill Group in 2006.
Many retailers across the country have been struggling as the economy has slowed. Eight midsize retail chains, including the Levitz furniture stores and the Sharper Image electronics seller, have sought protection under Chapter 11 of the US Bankruptcy Code over the past six months, while others have been shutting stores. The victims in Massachusetts have included Norwood furniture chain Domain Home, which filed for bankruptcy Jan. 18 after lenders pared its credit line.
"You're starting to see the banks trying to limit their risk because of the credit crisis and because retail doesn't look like a good place to extend credit right now," said Crystal Lanigan Kallik, specialty retail analyst for D.A. Davidson & Co. in Lake Oswego, Ore.
In its SEC filing yesterday, Talbots said it was notified on April 9 that the Hongkong and Shanghai Banking Corp. would gradually be cutting off a $135 million line of credit used to import merchandise. The bank reduced Talbots' credit limit to $50 million, effective last week, and advised the retailer it would further scale it back to $45 million on May 8, $30 million on June 9, and $15 million on July 8. The filing said Talbots was told the bank would cancel the credit line entirely on Aug. 8.
Talbots also said in the filing that a $130 million credit line from Bank of America Corp. expired on Feb. 23, and the retailer was told on April 7 that no new credit would be provided. At the same time, Talbots said the Mizuho Corporate Bank had extended a credit line on April 11 providing for up to $18 million in borrowing over the coming year.
The filing said Talbots had renegotiated payment terms with unspecified vendors from which it purchased the bulk of its merchandise and was seeking similar agreements with other vendors. It also said the Hingham retailer was actively pursuing other sources of lending.
"If the company is unable to secure new letter of credit agreements, the company intends to purchase inventory without utilization of letters of credit, subject to the availability of cash on hand," Talbots said in the filing.
Robert Weisman can be reached at weisman@globe.com.
