Cash-strapped lingerie company Frederick’s of Hollywood Group Inc. is risking what may be its most valuable asset – its trademark – in order to pay bills.
The Hollywood company announced last week that it secured a $24 million line of credit from Salus Capital Partners LLC in Boston. But to get the credit, Andy Moser, Salus president, said the company had to give the investment banking company first lien on Frederick’s trademark.
“The facility is secured by their inventory and accounts receivable, as well as by the brand, their intellectual property,” he said. “We are thrilled to partner with Frederick’s and look forward to a long-standing relationship.”
The three-year revolving credit facility replaces Frederick’s $12.5 million line of credit with San Francisco’s Wells Fargo Bank, as well as an $8 million term loan with Hilco Brands LLC in Northbrook, Ill. Both were scheduled to mature in 2013. The money from Salus will provide the company with money for general corporate purposes.
Salus makes loans to companies with higher-risk profiles than traditional bank lenders are comfortable with.
Frederick’s, once an iconic lingerie brand, is one of those companies with high financial risk. Facing intense competition from rivals such as Victoria’s Secret, the company has lost money for the past four years and the company’s stock has been trading at less than $1 for more than a year. Furthermore, same-store sales dropped 4 percent in May compared with the same month the previous year.
Paul Zaffaroni, a director at Newport Beach investment bank Roth Capital Partners LLC, said he doesn’t believe that Salus is trying to get control of the Frederick’s trademark through the credit line.
“I think they truly want to generate a certain return on their investment,” Zaffaroni said. “But at the same time, if you’re going to make that investment, you have to be comfortable with the underlying security if something were to happen.”
Frederick’s announced in early May that it hired New York investment bank Allen & Co. LLC to explore “strategic options” that include a possible sale of the company.
Frederick’s executives declined to comment for this article.
