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In recent weeks, it's become increasingly apparent, both inside and outside the apparel and retail industries, that the ability of companies to emerge from or resist bankruptcy is being adversely affected by the higher costs and tighter availability of credit. Access to money can no longer be depended upon to help companies endure tough business conditions or critical cash shortfalls.
Richard Kestenbaum, a partner at investment banking firm Triangle Capital, said the times when companies were able to get new financing to help postpone the day of reckoning are now over.
"We are finding that over the last several years, we've been able to sell companies that were doing well for good multiples. In the last six months, there hasn't been much of a market for those companies as much as there is for firms doing terribly and which can't get financing," the banker said.
He noted that, in the past several years, many of these companies "would have been able to paper over their problems with financing."
Kestenbaum's firm recently represented bankrupt Red Envelope's sale to Provide-Commerce, a Liberty Media subsidiary, for about $16 million.
According to the banker, the Internet gift site had undergone several changes in strategy as well as chief executives, none of which gave lenders confidence about the stability of the company. "The company was looking for financing between $5 million and $20 million, and if they got it, it might have saved the company. But this is a different market now. If this had been back in 2006, they would have been able to get the financing," he said.
Last week, word surfaced that the once high-flying Steve & Barry's University Sportswear is up against increasingly difficult odds as it scrambles to raise $30 million in financing. Some financial sources said that even if it does line up the financing, it will face almost prohibitively high interest rates on its loans.
Goody's Family Clothing Inc., which filed for Chapter 11 bankruptcy court protection in early June, was able to get financing earlier in the year, but was socked with interest rates in the 12 to 14 percent range. It also was able to get a $210 million debtor-in-possession credit facility for use during its tour of bankruptcy, but the interest rate was just as high as the financing package inked months before the bankruptcy filing.