Barney's Has A New Owner...Again.

Barneys New York once again has a new owner.

In a debt-for-equity swap rescuing it from a potential bankruptcy, Barneys has reached an agreement with its largest lender, Perry Capital, as well as The Yucaipa Cos., another key lender, and its current owner Istithmar World, to significantly reduce its debt and improve the capital structure. Perry Capital, run by Richard Perry, now becomes the majority owner of Barneys.

For decades, the luxury retailer has struggled with huge debt, changing ownerships, a bankruptcy in the Nineties and an appeal that is considered too luxurious and narrow for some of the cities where it operates. Amid it all, the store has managed to maintain a reputation for high-quality merchandise, irreverent marketing, artisanship and being among the first to introduce some of the world’s best design talent.

On Monday, after the deal was disclosed , Barneys chief executive officer Mark Lee and its new chairman Richard Perry said the transaction gives the store newfound financial flexibility to grow the business and accelerate long-overdue renovations, as well as ease worries about the looming debt that was coming due in the next few years.

Officials also said Barneys’ operations are strong, but the company had been heavily leveraged due to its 2007 sale by The Jones Group to Istithmar World for about $800 million. Perry helped finance that deal. It was a premium price to pay, ultimately dragging down the bottom line and for several seasons creating jitters in both fashion and banking circles regarding Barneys’ ability to survive.

Under the deal, Perry Capital and The Yucaipa Cos., which is run by Ron Burkle, have partnered to convert debt-for-equity to reduce the retailer’s long-term debt from $590 million to $50 million.

“This agreement really puts the balance sheet in a very good condition to match our strong operational performance,” Lee told WWD. “The debt relates to the 2007 acquisition. We’ve been heavily leveraged since then. With only $50 million in debt left, we have huge financial flexibility to execute and accelerate our strategy. From an operational point of view, we have been very strong. We grew revenues by double digits and profits [earnings before interest, taxes, depreciation and amortization] by 40 percent.”

Barneys still has to renegotiate a revolving credit agreement. Perry said, “That’s kind of a nonissue at this point.” According to Perry, the revolver has been paid down “dramatically,” and was more than supported by working capital. “There are a lot of people who would be part of the revolver. This is not a significant deterrent or liability for the company.”

With Perry, the majority owner, Istithmar and Yucaipa retain minority stakes. Executives declined to reveal the exact breakdown of ownership.

A new board will be created at Barneys. Perry will be its chairman and Perry Capital will have three additional seats on the board. Lee is also on the board. In addition, Yucaipa and Istithmar will each have a seat, for a total of seven. “The board very much reflects the consensual and cooperative way this transaction was accomplished,” Lee said.

Perry, when asked if he would play an active role in the company, responded: “My responsibility is to support Mark and his management team, and to make sure we give him the capital necessary to create his vision, which is really exciting.” He stated that he would not have an operational or executive role. “I expect to be helpful and involved and to give Mark all the additional input he might want and need and to be his partner.”

Lee added that the increase in free cash flow “allows us to invest in the business and begin long-overdue renovations,” including continuing work already begun at the Madison Avenue flagship by 60th Street. Lee said the ground floor will be complete by the end of summer, and a new shoe floor will be unveiled on the fifth level in the summer, among other changes.

Lee also said Barneys is planning for major renovations at the Beverly Hills flagship, considered the luxury chain’s second most important store, where so far there have only recently been some “minor” upgrades. Barneys also has what it considers “flagships” in Chicago, Seattle, Boston, Dallas, San Francisco, Las Vegas and Scottsdale, Ariz. In addition, barneys.com is being redesigned and will be relaunched in a matter of weeks.

Despite Barneys executives consistently stating that its operations are healthy and business has been strong recently, the store continues to be dogged by speculation that certain locations are lacking for traffic. However, Lee said no Barneys stores are closing, when asked if that was a possibility.

“We have closed a few Co-ops,” Lee acknowledged, while also noting the company regularly reviews store performances and leases. Regarding the Co-op closings, Lee said, “There’s no big news there.”

Asked again to respond to speculation about some stores lacking traffic, Lee said it’s best to look at the store portfolio overall, stressing, “What matters is the end result of the [entire] company.”

Perry took a slightly different perspective, saying, “It would not surprise me if we were not hitting on all cylinders at all times.…If you look at the economics of the United States, certain cities are doing extremely well and certain cities have not recovered yet,” from the recession. Among the Barneys locations said to be slow are the units in Las Vegas and Dallas.

“There’s no debt on the company now,” Perry said. “The company is going to grow. There is a long, long runway for this company to operate really successfully. All the partners got together and eliminated the debt. That was really the problem. That was the real fear. Other than that, things have been very, very good.”

source WWD