Rafaela $160 million six-year deal talked in 12% area, with sweetened terms

By Paul Deckelman

New York, June 9 - Rafaella Apparel Group Inc.'s planned $160 million offering of six-year senior secured notes is expected to price to yield around 12%, according to pre-deal market price talk which emerged on Thursday.

High-yield primary market sources also said that the terms of the offering have been improved, with registration rights being added to the Rule 144A transaction - they were not originally a part of the deal - and some cash flow sweep may also be added.

The deal, which was announced May 31 and which has been on a roadshow since then, is being brought to market by Jefferies & Co., and is most likely to price early next week.

The notes will be non-callable for the first three years after issue. They will carry a B2 rating from Moody's Investors Service and a CCC rating from Standard & Poor's.

Proceeds from the note sale are expected to be used to partly fund the planned leveraged buyout of New York-based women's apparel maker Rafaella Sportswear Inc., which said on May 31 that it has agreed to sell substantially all of its assets to Rafaella Apparel Group, a new company that will be controlled by Cerberus Acquisition, an affiliate of Cerberus Capital Management, LP.

Financial terms of the buyout deal were not disclosed. The acquisition of Rafaella, a designer, sourcer and marketer of women's career and casual sportswear separates, such as pants, sweaters, blouses, t-shirts, jackets and skirts, is expected to close by the end of June. The current shareholders of Rafaella will have "a continuing ownership interest in the new company," Rafaella Sportswear said in its announcement.

Cerberus will own 75% of the new company, and Rafaella Sportswear the other 25%. Cerberus will make a $40 million equity investment in the company by the purchase of convertible redeemable preferred shares issued by Rafaella, with the resulting $200 million of proceeds, between the new debt and the $40 million equity investment, to be used to buy Cerberus its 75% stake.

Rafaella, in business since 1982, principally sells to department and specialty stores and off-price retailers. Its over 700 customers represent over 5,000 individual retail store locations.

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