Gap in talks for new bonds to get through Covid-19 crisis

Bloomberg

Gap Inc is in discussions to issue new bonds backed by assets including real estate as one financing option to get it through the coronavirus pandemic, according to people with knowledge of the situation.
The talks with investors and banks would be for bonds backed by inventory and certain properties including distribution centres, the people said, asking not to be identified speaking about a private matter. The interest rate and maturity on the debt is still under discussion, and plans could change based on investor response, they said.
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 focussed 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, JC Penney Co, Gap, Kohl’s Corp and L Brands Inc have furloughed employees as stores remain closed. While retailers continue to pay for healthcare 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.

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 on its $500 million revolving credit facility.