Distressed Firms Face Adverse Credit Climate

Some credit watchers are keeping close tabs on The Talbots Inc., hoping the deal with its majority shareholder, Aeon Co. Ltd. — for a $50 million unsecured subordinated working capital term loan credit facility maturing in January 2012 — goes through to give the women's specialty chain a much needed financial boost.

Another retailer that is raising some eyebrows because of its losses is Claire's Stores Inc. The company on June 11 said lower sales and almost $49 million in interest expense left it with a $35.6 million loss in the first quarter. The Pembroke Pines, Fla.-based specialty retailer of jewelry and accessories, which was acquired and taken private by Apollo Management LP and other interests in May 2007, reported red ink compared with net income of $28.8 million in last year's quarter. Sales decreased 4 percent to $327 million from their year-ago level as comparable-store sales fell 8.4 percent.

Gene Kahn, ceo, noted that the company began the year with expectations of same-store sales growth, but that eroding sales trends led to a review of expenses. He estimated that the company can trim $15 million from its original cost projections and realize $40 million in annualized savings beginning next year.