Mithaq Capital’s Loans to The Children’s Place Secures BTS Season
Mithaq Capital SPC is taking charge at The Children’s Place Inc.
The Riyadh-based Saudi Arabian office of the Al-Rajhi family is providing the children’s retailer with a $78.6 million interest-free, unsecured and subordinated term loan to strengthen the liquidity of the The Children’s Place. Mithaq provided an initial tranche of $30 million to the retailer on Feb. 29 and is slated to provide the additional $48.6 million on or before March 29.
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“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,” Turki Saleh A. AlRajhi, Mithaq’s chairman and CEO, said.
Mithaq has already taken four board seats, following the resignations of former directors Elizabeth Boland, Alicia Enciso, Katherine Kountze and Wesley McDonald. New board members include AlRajhi, Muhammad Asif Seemab, Muhammad Umair and Hussan Arshad. AlRajhi has been appointed chairman-elect of the retailer’s 10-member board. He is sharing chairman duties with Norman Matthews during a transition period.
AlRajhi also said the company is taking steps 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.” He added that Mithaq’s 54 percent equity stake “demonstrates out belief that this can be accomplished.”
The Children’s Place disclosed on Feb. 15 that Mithaq had taken a majority position of the retailer’s outstanding shares. Mithaq did so in an unusual move by buying shares in the open market over a three-day period. Because the acquisition of shares triggered a change of control provision, the retailer is considered in default under its credit agreement with bank lenders. The Gymboree owner was able to negotiate a forbearance agreement with lenders in order to enter into the term loan agreements with Mithaq. That agreement provides for the permanent waiver of the change of control default, pending satisfaction of certain conditions. The retailer also expects to close on a $130 million term loan from Gordon Brothers.
Following the funding of the second $48.6 million term loan, the four remaining non-Mithaq appointed directors will resign, and Mithaq will appoint four more directors to the retailer’s board. The retailer has secured certain minority shareholder protections for the remaining two board member, one of whom is Jane Elfers, who remains president, CEO and director of the company. Elfers and Mithaq appointees Seemab and Umair are members of the special Efficiency and Optimization Committee that was formed to identify and make recommendations to the board in connection with increasing business competitiveness and efficient cost management at the company.
The Children’s Place first disclosed in February that its liquidity issues would require a strategic review of its options. The retailer has been struggling for some time. Last June, it let go of 17 percent of its staff, or 181 employees, as part of a plan to go digital-first. In addition to targeting up to 100 doors for closure, it also said it would exit its Secaucus, N.J. headquarter lease this May, instead of 2029. On Tuesday, CoStart News reported that the retailer had decided to stay at its headquarter location, although it will now be occupying a much smaller office space that totals 120,000 square feet instead of its former 197,000 square foot occupancy.
