- The Washington Times - Thursday, April 17, 2008

BOSTON (AP) — Shares of Talbots Inc. plunged yesterday after two banks decided to cut off their flow of credit to the women’s apparel retailer, making it tougher to find cash as the chain tries to rebound from recent losses and store closures.

The stock dropped $3.69, or 29 percent, to close at $9.16 after sinking as low as $8.57 earlier in the session.

The Hingham, Mass., retailer said it has enough cash to fund its business initiatives this year, but that did little to ease the sell-off.

After markets closed Tuesday, the chain of more than 1,400 stores disclosed in a Securities Exchange Commission filing that Hong Kong-based HSBC will phase out a $135 million line of credit that Talbots uses to finance purchases of foreign-made clothing and apparel. HSBC notified Talbots it will reduce credit incrementally before canceling it Aug. 8.

Another line of credit totaling $130 million from Charlotte, N.C.-based Bank of America expired and won’t be renewed.

The same regulatory filing said another lender, Japan’s Mizuho Corporate Bank Ltd., extended an earlier agreement, allowing Talbots to borrow up to $18 million over two years.

Talbots also said it renegotiated payment terms with vendors that supply about three-quarters of its foreign-made merchandise, and will seek improved terms with other vendors.

The renegotiated terms, which give Talbots more time to make payments, are expected to add $40 million to operating cash flow this year, Talbots said yesterday. The extra cash is expected to boost 2008 cash flow to about $200 million.

Talbots also said it is in talks with banks in an effort to secure a $50 million line of credit “in the next few weeks.”

“While the credit and financial markets are in a state of considerable flux, we have an alternate plan in place, and have revised most of our vendor relationships to maximize the company’s financial flexibility and greatly reduce our need for letters of credit,” Chief Executive Officer and President Trudy Sullivan said.

Oppenheimer & Co. analyst Roxanne Meyer said the moves by HSBC and Bank of America could make it tough to finance growth needed to turn the company around.

“With two major banks walking away, it won’t be easy and financing will not be cheap,” Ms. Meyer wrote in a research note.

Talbots and other women’s apparel chains have struggled as shoppers become increasingly cost conscious, and women over 35 turn toward trendier, frequently refreshed fashions and designer knockoffs.

In January, Talbots said it would close its 78 children’s and men’s stores to focus on its core middle-aged female customer.

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