Barneys in talks over huge debt load

Luxury US retailer Barneys, controlled by Dubai's Istithmar World, is in talks with lenders as it tries to manages its debts.

Barneys New York, a luxury retailer owned by Dubai World, is in discussions with lenders as it strives to manage a huge debt pile.

Barneys said it was engaged in discussions with the company's small group of lenders to improve its balance sheet and further position itself for sustainable, long-term growth and success.

"We are focused on resolving this matter as expeditiously as possible, and it will remain business as usual at Barneys New York," the company said in a statement.

Istithmar, an investment arm of Dubai World, bought Barneys for US$942.3 million (Dh3.4 billion) in 2007. Istithmar declined to comment on the latest developments.

Barneys has approached a bankruptcy and restructuring law firm in the past couple of weeks, according to The Wall Street Journal.

The newspaper added that the law firm also helped companies to fix their balance sheets, so a restructuring or bankruptcy filing was not necessarily imminent, particularly considering that the chain had reported improvements in sales and earnings.

A report issued by Moody's last summer described Barneys's capital structure as "unsustainable".

"The already high debt burden continues to grow due to steep payment-in-kind interest accrual on the mezzanine notes," the report stated.

"In September 2012, the notes' interest will convert to cash-pay, adding about $35m to Barneys' annual cash needs. Additionally, the asset-based revolver matures in September 2012."

This is not Istithmar's only retail asset to have faced trouble.

Loehmann's, the US department store chain also owned by Istithmar, emerged from bankruptcy last March.

The chain, based in New York with 40 stores across the US, eliminated $110m of long-term bond debt and $14m of related annual interest through its restructuring.

Istithmar bought Loehmann's in 2006 for $300m as Dubai World's investment arm built up a portfolio of assets at the peak of the market with large amounts of debt.

Istithmar also bought the luxury liner Queen Elizabeth 2,for $100m from Cunard in 2007. It also took a 20 per cent stake in Cirque du Soleil. Istithmar bought a 73 per cent stake in the Mandarin Oriental in New York for $340m in 2007 and the W Hotel Union Square for $285m in 2006.

The W Hotel was sold in a foreclosure auction in December 2009 for just $2m.

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