Aeropostale, Inc., a mall-based specialty retailer of casual apparel for young women and men, has signed a commitment letter with Sycamore Partners and its affiliates for a strategic partnership and $150 million in senior secured credit facilities. The senior secured credit facilities will consist of a five-year $100 million term loan facility and a ten-year $50 million term loan facility that includes a sourcing arrangement with MGF Sourcing, an affiliate of Sycamore Partners.
Under the terms of the commitment letter, Aeropostale will also issue convertible preferred stock to Sycamore Partners. The convertible preferred stock gives Sycamore Partners the right to acquire up to 5% of the Company's common stock at an exercise price of $7.25, the closing price of the Company's common stock on March 12, 2014. Combined with Sycamore Partners' current ownership of Aeropostale's outstanding common stock, Sycamore Partners' ownership on an as-converted basis would increase to approximately 12.3% of the Company's outstanding common stock.
The new strategic sourcing partnership with MGF Sourcing significantly diversifies Aeropostale's apparel production, and all of the Company's sourcing orders will continue to be awarded through a competitive bidding process. The sourcing partnership will result in Aeropostale's commitment to complete minimum merchandise purchases each year for ten years. As the Company fulfills its minimum purchase requirements under the sourcing partnership, all amortization payments of the associated facility will be fully rebated.
The effective blended cost of capital for the combined $150 million financing is approximately 6.7%, resulting from a 10% interest rate on the $100 million facility and a 0% net effective cost of capital on the $50 million facility. With respect to the $100 million facility, up to 50% of the interest can be paid-in-kind during the first three years and up to 20% can be paid-in-kind during the final two years. Sycamore Partners' senior secured credit facilities will be secured by a second priority security interest in all current assets of the Company and its certain subsidiaries that are pledged already for the benefit of Aeropostale's revolving credit facility lenders, and a first priority security interest in the Company and its certain subsidiaries' remaining fixed assets.
Aeropostale retained Barclays as its exclusive financial advisor and placement agent to explore investment and financing alternatives. The commitment letter with Sycamore Partners and its affiliates announced today was the culmination of that review process. Weil, Gotshal & Manges LLP served as legal advisor to Aeropostale.
Aeropostale, Inc. is a primarily mall-based, specialty retailer of casual apparel and accessories, principally targeting 14 to 17 year-old young women and men through its Aeropostal stores and 4 to 12 year-old kids through its P.S. from Aeropostale stores.
Sycamore Partners is a private equity firm based in New York.
MGF Sourcing is one of the largest apparel sourcing, manufacturing, and supply chain companies in the world.