Rafaella Apparel lacks minimum tender needed to close its 11¼% notes offer, amended loan agreement

By Susanna Moon

Chicago, March 22 - Rafaella Apparel Group, Inc. failed to get the minimum amount of its 11¼% senior secured notes due 2011 needed to complete its modified Dutch auction tender offer, according to an 8-K filing with the Securities and Exchange Commission.

The tender offer was conditioned on at least $17,975,000 notes being tendered by 11:59 p.m. ET on March 19, the offer deadline.

As a result, the company said it did not purchase any notes tendered in the offer.

Rafaella's amended and restated credit agreement also was conditioned on the minimum amount of notes being tendered under the Dutch auction.

Tender offer terms

Under the offer, the company said it would purchase $17,975,000 to $36.38 million principal amount at maturity of notes, provided that it did not pay more than $19.1 million in total, excluding accrued interest.

As of Feb. 22, there was $71,861,000 principal amount at maturity of the notes outstanding. The minimum tender amount and the maximum tender amount represented about 25% and 50.6% of the outstanding amount, respectively.

Holders were to specify a purchase price of between $525 and $600 per note. The company said it would also pay accrued interest up to but excluding the purchase date.

On March 5, Rafaella clarified the terms of its offer to explicitly rule out selecting a purchase price lower than the highest purchase price received at which all of the tendered notes may be purchased for the maximum purchase price.

The company had originally said it would choose a purchase price within the price range that would allow it to purchase a principal amount at maturity of the notes that was no less than the minimum tender amount and no greater than the maximum tender amount and did not exceed the $19.1 million maximum total purchase price.

Amended credit agreement

Rafaella had said it expected to fund the offer with cash on hand and borrowings under an amended credit agreement with HSBC Bank USA, NA. The company's controlling stockholder or its affiliate was to participate in the amended credit agreement by providing up to $10 million in a senior secured term financing.

The company had entered into the amended credit agreement, but the agreement will not close because the company will not purchase notes under the tender offer by April 2.

Lazard Middle Market LLC (212 758-8575) was the dealer manager. MacKenzie Partners, Inc. (800 322-2885 or 212 929-5500) was the information agent.

Rafaella makes women's career and casual sportswear separates and is based in New York.

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