Bear Stearns Merchant Banking completed two separate credit lines to back the acquisition of Lerner New York/New York & Company from Limited Brands. The Bear Stearns private equity arm wanted a loan with a secondary lien on assets along with a three-year, $120 million revolver that was jointly underwritten by Congress Financial and CIT Group, said Bo Arlander, senior managing director at Bear Stearns. But the two lead banks would only do a loan with a first lien on assets, so the firm tapped Capital Source for a separate five-year, $20 million term loan. CIT and Congress do not provide second lien loans, she said. "It is in between a mezz and a 'B.' It's a hybrid" she stated, explaining the piece of debt.
Arlander would not disclose the final pricing on the lines. Most of the revolver remains undrawn and is in place for general corporate purposes, while the loan was used to back the purchase, she said. Limited was paid $78.5 million cash at closing, along with a $75 million subordinated note and warrants for 15% of common equity of the new company. The cash component included $65 million of equity on top of the term loan, Arlander said.
Limited, which operates such retail chains as Victoria's Secret and Express, has been trying to divest some of its businesses in order to get out of non-core brands, Arlander explained. "We feel it's been neglected for the past few years," she added, stating that Bear Stearns and the participating investor group are willing to provide the capital that the women's clothing retailer needs to grow and pick up its business. She highlighted the firm's plans to expand and continue the re-branding process of the chain. Bear Stearns plans to eventually strip the Lerner name completely to provide a newer and consistent image for the stores, she said.