The Gap, hit hard by a combination of fashion faux pas' and the weak U.S. economy, was still able to receive $1.3 billion in commitments on a new two-year credit facility last week. The old facility led by Citigroup was maturing in June and some bankers suggested The Gap could be as out of favor with banks as the casual dress it supplies within them. "The stock price has run away from them and the retail environment is very tough right now," said one banker. The new line is expected to close in March, but pricing and the lead banks could not be ascertained. Calls to the treasurer, Sabrina Simmons, were referred to a Gap spokeswoman who declined comment on the refinancing and a Standard & Poor's report on the company, which placed them on credit watch negative. The senior secured bank loan is on BBB+.
S&P acted on concerns The Gap may not be able to adequately turn around its flagging sales and earnings at Gap, Banana Republic and Old Navy stores. S&P has expected the company to show some improvement in 2002, as it was up against weak comparisons from the year before. However, The Gap's merchandise margins continue to suffer from lower markdown margins and higher sales at lower markdowns, according to S&P. Near term, The Gap has good financial flexibility, and the company expects to end the fourth quarter with a cash position of more than $800 million. Bankers at Citibank did not return calls.