Zale Corp. has secured what executives termed a “milestone” new financing arrangement, which replaces its 2010 deal with Golden Gate Capital that analysts said had saddled it with costly fees and interest.
“This is a major step forward in our plans to return to profitability,” said CFO Tom Haubenstricker in a conference call following the announcement of the new financing.
Haubenstricker also announced that the company expects to report 8 percent comp store growth in the fourth quarter—which would be its seventh straight quarter of comp store growth. He also expects to report a 7 percent rise in comp store sales for the full year.
But in response to a question, CEO Theo Killion said that even with this new financing, the company doesn’t expect to make any big changes.
“We are going to stay with the course we’ve been on,” he said. “We have been pretty consistent for the last two years. We have to make sure we are managing the business in a conservative way, and to the extent there are opportunities, we can seize [them].”
The new deal includes a new $665 million credit facility that matures in five years, an increase of about three years from the prior agreement. It includes a new $15 million first-in, last-out (FILO) credit facility.
The increased availability from these facilities will fund a prepayment of $60.5 million on its senior secured term loan from Golden Gate Capital.
In addition, Zale amended and extended its loan with Golden Gate Capital for the remaining $80 million. The new loan matures in five years, an increase of about two years from the prior agreement. The fixed interest is now 11 percent annually, a reduction from the previous interest rate of 15 percent.
Overall, the company expects to save $17 million a year with the new deal.