The Tampa sportswear company will use the influx of credit to help rebuild its credibility.
By MARK ALBRIGHT
Published June 23, 2004
TAMPA - Tropical Sportswear Int'l Corp. has negotiated a new revolving credit facility with improved terms intended to help the struggling apparel company regain lost momentum.
The new credit line, which Tropical uses to buy materials to create products, is for $60-million and features a lower interest rate and less onerous terms than one signed in January.
Tropical's once beaten down shares, which soared more than $1 in the past week, closed Monday at $3.46, up 6 cents.
CIT Group is the new lender, but Fleet Financial, which had arranged the previous deal, remains a participant in the syndicate.
Tropical came close to bankruptcy last year when it was in technical default on a $95-million short-term credit facility and a separate real estate loan. The company botched the consolidation of its Savane Division by missing delivery deadlines during the critical Christmas holiday season. Retailers flocked to cancel orders, leaving Tropical warehouses jammed with more than 1-million pairs of unsold pants.
Bankers impose performance restrictions on unsecured debt to keep potential problem borrowers on a short leash. The deal Tropical negotiated in January would have found the company in technical default if its operating profits and cash flow slipped below specific ratios, a relatively common occurence in the ups and downs of companies trying to turn themselves around.
The last of Tropical's inventory backlog is finally cleared. The company also sold its new but never-occupied corporate headquarters in Tampa.
"The new credit facility will help us restore credibility with retailers by assuring them that we can deliver what they order," said Michael Kagan, Tropical chief executive.
While Tropical heals from self-inflicted wounds, analysts have cast uncertainty over all apparel makers like Tropical that have relied on contractors in Mexico and the Caribbean Basin. Protective tariffs expire next year on clothing assembled in those countries, exposing manufacturers to cheaper prices from newer plants in Asia.
But Tropical has been preparing itself for the transition. Even though a majority of its products are made in the Dominican Republic or Honduras, it owns no overseas factories and only sources its denim jeans from Mexican factories. Tropical closed its last U.S. fabric cutting operation last winter and has been shifting more work to contractors and fabric makers in China.
"We are now a designer, marketer and distributor rather than a manufacturer," said Kagan.
The company, which has ridden the all-cotton khaki trend for more than a decade, also had to change its mix as more of men's casual fashion shifts to dressier styles and microfibers that are made in Asia. About a quarter of Tropical's pants are now made from polyester blends.
