The Children’s Place secured $78.6 million in interest-free, unsecured term loans as part of a financing agreement with its new owner, Mithaq Capital.

Under the terms of the deal announced Feb. 29, the Secaucus-based children’s apparel retailer received an initial tranche of $30 million Friday. An additional $48.6 million is due March 29, subject to certain conditions.

The funds will be used to support operations, including payments to vendors and service providers, as The Children’s Place works to improve its liquidity position and strengthen its balance sheet, the companies said in a joint press release.

The arrangement comes about two weeks after Saudi Arabia-based Mithaq snapped up a 54% controlling stake in the company. The family-run investment firm – which has ties to the world’s biggest Islamic bank – also said it plans to nominate 11 people to the retailer’s board, as well as assist with liquidity needs.

In its update this week, The Children’s Place said that four of its directors (Elizabeth Boland, Alicia Enciso, Katherine Kountze and Wesley McDonald) resigned to make room for the firm’s nominees. Mithaq President Turki Saleh AlRajhi was appointed chairman-elect during a transition period. Muhammad Asif Seemab, Muhammad Umair and Hussan Arshad also joined the board.

Upon funding of the second loan, at least four of the remaining non-Mithaq appointed directors will step down. At that time, Mithaq appointees will then comprise a majority of the board, the release said.

While Mithaq’s acquisition of shares amounted to a change of control that automatically put The Children’s Place into default on existing credit agreements, lenders have since agreed to a permanent waiver provided Mithaq’s financing goes through, the release said.

The company also expects to soon close a previously announced $130 million term loan from distressed investment specialist Gordon Brothers. The proceeds will repay an existing $50 million loan from lenders.

Looking ahead

Additionally, The Children’s Place board formed a special committee, made up of Seemab and Umair as well as CEO and President Jane Elfers, to identify and recommend how to make the business more competitive and cost efficient.

AlRajhi commented, “We are pleased to have reached this agreement, which provides substantial interest-free and unsecured funds to deliver products during the critical back-to-school season. I am also delighted to join The Children’s Place Board as Chairman-Elect and am grateful to the management team and the Board for their trust. l am fully committed to representing all fellow shareholders with unshakeable reliability.”

“We are taking the steps announced today to protect and compound at a reasonable rate of return the per-share intrinsic value of the total equity value for all fellow shareholders, with whom we are fully aligned. Our more than 54% equity stake in the Company demonstrates our belief that this can be accomplished,” he said.

In February, The Children’s Place issued a profit warning, saying it would likely miss expectations for the fourth quarter of 2023. The company also said it was in talks with lenders and advisors to obtain new financing to keep operations going and may consider “strategic alternatives.”

Like many other specialty retailers, The Children’s Place has evolved its brick-and-mortar approach amid the rise of e-commerce. As part of a shift from a traditional store concept into a digital-first business, it has permanently closed more than 700 locations in the last decade.

The company’s footprint now stands at roughly 500 stores in the U.S., Canada and Puerto Rico. In addition to trimming its presence in malls, the retailer’s corporate workforce was reduced by 17% in 2023. 

The retailer also faces a slowdown in children’s apparel sales in North America due to a falling U.S. birth rate, discretionary spending challenges and continued shift to online shopping. The 55-year-old company brand’s include Gymboree, Sugar & Jade and PJ Place.

‘A significant shortfall’

Additionally, The Children’s Place faces a proposed class action lawsuit for allegedly misleading investors ahead of last month’s announcement it expects net sales to fall short of prior guidance.

Filed in U.S. District Court for the District of New Jersey, the complaint accuses The Children’s Place of potential securities fraud and unlawful business practices following “a significant shortfall” in the preliminary fourth quarter fiscal year 2023 financial results.

Kirby McInerney LLP, a New York law firm involved with the class-action, said the Feb. 9 disclosure before the market open led to a 37% plunge in The Children’s Place’s share price. It closed at $12.51 per share on the same day, marking a significant impact on investor trust and financial standing.

Citing lower than expected merchandise margins due to aggressive promotions, unforeseen split shipments to fulfill e-commerce demand and increased inventory valuation adjustments, the company projects quarterly sales of $454 million to $456 million.

That’s down from prior guidance of $460 million to $465 million.

Adjusted operating loss for the quarter is expected to be higher than anticipated – in the range of 9% to 8% of net sales. Prior guidance called for between 2% to 3% of net sales.

Total liquidity is expected to be about $45 million – a combination of $13 million in cash and cash equivalents plus $32 million in excess availability under a credit facility. Total debt is expected to shrink by more than $100 million from the previous quarter. For the year, it sits at about $277 million compared to $408 million the year before.