Blog: Leonie BarrieTalbots’ own credit crunch

Leonie Barrie | 17 April 2008

Things are not looking good for Talbots. The US clothing retailer, which recently posted a fourth quarter loss of $171m is in the midst of a reorganisation that involves closing 78 stores, has now had a vote of no confidence from its bankers.

Bank of America has cancelled its $130m credit line, and the existing $135m letter of credit facility with HSBC won’t be renewed after 8 August.

As well as making it hard for the company to find a new form of financing – and certainly not one that’s cheap – the loss of these credit lines has serious implications for its suppliers.

Without the letters of credit, in which lenders guarantee payment for merchandise, it’s unlikely suppliers – most of which are in Asia – won't ship goods to Talbots without up-front cash payments.

Those that continue to do business with the retailer will be working under revised vendor agreements that give it 45 days to pay – not only increasing the risk for suppliers but also meaning that their own cash flow is impaired. 

Talbots believes its working capital lines of $165m are “sufficient” to run the company in 2008. But if it plans to purchase inventory depending on the availability of cash in hand, there’s a strong likelihood it may be forced to cut its inventories.

Not surprisingly, the market isn’t impressed. According to Bloomberg calculations, stock in the clothing chain yesterday saw its biggest drop in more than 14 years.

Talbots revises payment terms as banks cut credit


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