Sometimes it just doesn't rain, it pours. Arcapita of Bahrain's acquisition of the US specialty women's apparel retailer J.Jill in June 2011 [see Issue 15] is already running into trouble.
Ratings agency, Moody's, has downgraded the private equity shop's $120m Ijarah [due 2017] from B2 to B3 as the retailer's sales faltered and the significant leverage involved in the deal weighs on the company's earnings. The outlook on the rating is negative.
Moody's re-rating follows a similar downgrade from S&P in September, which dropped its rating on the loan from a B to a CCC with a negative outlook based on the risk that the company will violate its debt covenants.
A spokesperson from Arcapita told The Islamic Globe that while J.Jill has had disappointing sales in the first half of the year, the retailer had made up ground before being negatively affected by "wider economic concerns and the downgrade of US government debt in August". The company's spokesman said: "the company is performing well and we have no concerns about its ability to deliver excellent returns on our investment."
The purchase of J.Jill represented a bit of a volte-face for Arcapita which was on a selling spree to try and raise $1.1bn to repay a Murabahah due in April 2012. Arcapita told The Islamic Globe that the firm was in "detailed discussions with a group of banks," which are "progressing positively" to refinance $725m of the Murabahah debt for another three years, with the balance to be paid "though group resources."
Arcapita "will [also] consider both equity and financing adjustments" to remain in compliance with debt covenants. If Arcapita can finalize its partial debt rollover, it will be in a better position to weather this problem in its latest investment.
As of June 30, Arcapita had cash of $132m, not including the $84.4m it had received gross of investor distributions from the sale of its remaining stake in Caribou Coffee earlier in the summer.
© The Islamic Globe 2011
