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Gap in talks to issue new bonds to overcome coronavirus crisis


According to people with knowledge of the situation, Gap Inc. is in talks to issue new bonds backed by assets like real estate as one funding alternative to get it through the coronavirus pandemic.

The discussions with investors and banks would be about inventory-backed bonds and certain properties including distribution centers, people said, asking not to be identified talking about a private matter. The interest rate and maturity on the debt are still under consideration, they said, and plans could change based on investor response.

A representative for Gap declined to comment beyond the company’s recent statements that it’s working to ensure liquidity. The San Francisco-based retailer had about $1.2 billion of long-term debt, not including liabilities from its leases, as of year-end.

Gap had almost 4,000 locations in 42 countries, of which 3,345 were company-operated, according to its latest quarterly results. Its brands include Gap, Banana Republic, Old Navy, Athleta, Intermix, Hill City and children’s clothing chain Janie and Jack. The company’s shares have declined about 56% this year, giving it a market value of $2.9 billion.

With consumers focused on essential purchases during coronavirus lockdowns, clothing retailers and department stores across the country are moving to shore up liquidity. Macy’s Inc. is exploring ways to use its real estate to secure fresh cash and ride out the pandemic, Bloomberg reported last week, while Nordstrom Inc. and Kohl’s Corp. have already bolstered their financial positions by increasing their borrowings and cutting back on costs.

Neiman Marcus, Macy’s, J.C. Penney Co., Gap, Kohl’s Corp. and L Brands Inc. have furloughed employees as stores remain closed. While retailers continue to pay for health-care benefits, the decrease in salary payments could save more than 50% in selling, general and administrative costs, analysts Poonam Goyal and Abigail Gilmartin of Bloomberg Intelligence said in a note earlier this month.

Online Sales

Gap continues to sell through its online business, which generated more than $4 billion in net sales in fiscal 2019, according to its website. It also announced a series of proactive financial measures to counter expected losses from the closures and strengthen its balance sheet, including the deferral of its April dividend payment. The retailer also drew down completely on its $500 million revolving credit facility.

The retailer values its non-retail real estate assets at more than $1.4 billion, and is in talks with its bank lenders about obtaining asset-based loans, Chief Financial Officer Katrina O’Connell said on a conference call earlier this month.

Gap has “kept a cautious and balanced approach to maintaining our balance sheet” with “solid free cash flow” and “low rates of funded debt,” O’Connell said at the call. “As you would expect, we are focused on maintaining sufficient liquidity and are well placed despite our good and stable relationships with our banking partners.” Moody’s Creditors Service cut Gap’s debt to junk territory two notches last month. The move came as a reaction to the decreasing cash flow from operations by the retailer, as well as potential virus disruption. According to its most recent figures, Gap finished the year with $1.7 billion in cash, cash equivalents and short-term investments.