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Coldwater Creek partners with private equity firm

Coldwater Creek's store in Twin Falls. Photo by Brad Carlson

Coldwater Creek Inc. on July 9 announced it received a $65 million senior secured term loan from Golden Gate Capital, a private equity firm specializing in retail. Coldwater stock jumped more than 50 percent the next day.

The money gives the struggling retailer of women’s clothing and accessories additional time to turn itself around, investment professionals said.

Sandpoint-based Coldwater last reported a full-year profit for its fiscal year ending in February 2007. In its last two quarters, losses were below those of year-earlier periods. The company has been overhauling its branding and merchandising amid growing competition and weak spending by consumers.

The Golden Gate loan is secured by a first-position lien on Coldwater’s assets and a second-position lien on Coldwater’s inventory and receivables. A Golden Gate affiliate received Coldwater convertible preferred stock that gives the affiliate the right to buy up to 19.9 percent of Coldwater common stock when the stock price hits 85 cents. Golden Gate also received the right to appoint members to Coldwater’s board.

Coldwater stock surged 53 percent July 10, to 80 cents. The one-year range is 45 cents to $1.83. The company on June 15 announced the Nasdaq Stock Market warned Coldwater its stock would be delisted if it didn’t hit $1 and stay there for at least 10 business days sometime before Dec. 11.

In May, Mergermarket reported private equity firms that specialize in turning around retailers were considering buying Coldwater Creek to take advantage of its low valuation and solid cash position.

Mergermarket Consumer Sector Head Ellena Kleinman said Golden Gate has done many buyouts. One is Payless Shoe Source, a deal launched earlier this year as part of the sale of the publicly traded Collective Brands, she said.

Golden Gate’s deal with Coldwater gives the company additional breathing room to continue its turnaround effort, she said.

Coldwater Creek’s options were finding a “savior” with cash or severely downsizing, said Sean Grubb of Northwest Investment Advisors in Spokane, Wash.

“Trying to find somebody to partner up with them might not be such a bad idea,” he said. “If everything is exercised, (Golden Gate) still owns 20 percent of the company, but it could be enough to get things going in a different direction.”

The money helps Coldwater, but it may not be enough money, Grubb said.

“It depends on how dedicated their customer is,” he said. “Many of the problems Coldwater Creek has could be fixed by more people buying their products.”

Coldwater also said it amended its $70 million revolving credit line with Wells Fargo Capital Finance.

A Coldwater investor relations official would not comment on the financing packages beyond what the company stated in a news release. The company fields 359 stores, and has catalog and Internet sales operations.

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