Exclusive: Claire's Stores to begin debt restructuring talks - sources

(Reuters) - Claire’s Stores Inc has decided to start negotiations with its creditors about restructuring its debt, as it seeks to avoid becoming the latest U.S. teen retailer to file for bankruptcy protection, according to people familiar with the matter.

Claire’s, known for its affordable jewelry and ear piercing services, has seen losses widen while its debt load has swollen to $2.4 billion, as more people shop online and take their teen and pre-teen girls to malls less frequently.

Apollo Global Management LLC APO.N, the private equity firm that owns Claire's, has asked law firm Morgan, Lewis & Bockius LLP to represent the retailer in its talks with its creditors, the people said this week.

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The sources asked not to be identified because the deliberations are confidential. Apollo, Claire’s and Morgan Lewis & Bockius did not respond to requests for comment.

At least eight teen apparel retailers have filed for bankruptcy over the past two years amid fierce competition and stagnating sales, including Aeropostale Inc AROPQ.PK, Pacific Sunwear of California PSUNQ.PK and The Wet Seal Inc.

Claire’s has shuttered more than 150 stores over the past year to help trim costs, and as of the end of April had 2,831 company-operated stores across the U.S. and Europe. The company generates annual revenue of around $1.4 billion.

Apollo, which took Claire’s private in 2007 in a leveraged buyout valued at approximately $3.1 billion, has already tried to give the company some debt relief. Earlier this year, Apollo bought Claire’s bonds maturing in 2017 and in May swapped out that debt for new debt that also matures next year, according to a regulatory filing. This has the effect of pushing back interest payments.

Credit ratings agency Moody’s Investors Service Inc last month called Apollo’s $175 million debt repurchase a “distressed exchange” that was carried out because of Claire’s inability to fully service its quarterly interest expense.

In May, Claire’s hired Ron Marshall as CEO. He was a member of the company’s board who had extensive experience working with distressed companies. He was previously the CEO of the Great Atlantic & Pacific Tea Co Inc, a supermarket operator, before it filed for its first bankruptcy. He also worked as the CEO of bookseller Borders Group Inc before it filed for bankruptcy.

Michael D’Appolonia, a former principal at turnaround advisory firm DeNovo Perspectives LLC, also joined the board of Claire’s in June.

Reporting by Jessica DiNapoli and Greg Roumeliotis in New York; Editing by Phil Berlowitz and Bernard Orr