RAPAPORT... Zale Corporation obtained a new $150 million, five-year, senior-secured-term loan from Golden Gate Capital. The private equity firm plans to utilize the interest and fees that accrue on the loan and warrants to purchase common stock aggregating a 25 percent equity interest in Zale on a fully diluted basis. On May 23, Golden Gate acquired a 19.9 percent stake in the jeweler, according to a Securities and Exchange Commission (SEC) filing.
Stefan Kaluzny, a Golden Gate managing director, and Peter Morrow, a principal at Golden Gate, were elected to serve on Zale’s board. Thomas Shull and David Szymanski resigned from the board. John B. Lowe, Jr., Zale’s current board chair, announced that he would not be running for reelection.
In addition, Zale closed on a new bank credit facility that amended and extended its existing, asset-backed credit facility. The new bank facility is led by Bank of America, the administrative agent, and General Electric Capital Corporation and Wells Fargo Retail Finance LLC, the coborrowing base agents, each of which committed $125 million.
The credit facility aggregates commitments of $650 million, including a $108 million seasonal adjustment. Zale’s previous credit facility totaled $600 million, including a $100 million seasonal adjustment. After applying Golden Gate Capital’s loan to its outstanding debts, Zale expects to have approximately $160 million in outstanding debt and available liquidity of approximately $250 million.
Zale also said that it entered into a five-year agreement with TD Financing Services, enabling it to offer a proprietary credit card program to its Peoples Jewellers and Mappins Jewellers customers in Canada, effective July 1, 2010. This program replaces Zale’s existing agreement with Citi Cards Canada.
Zale’s revenue was down 5 percent to $359.8 million during its fiscal third quarter that ended on April 30, while same-store sales fell 2.2 percent. The company reported a net loss of $12.1 million against the loss of $19.5 million it posted for the fiscal third quarter of 2009 and reduced its inventory levels by $70 million to $693 million. Zale closed six stores during the fiscal third quarter and has shuttered a total of 149 locations over the past 12 months, with 1,900 total stores remaining.
WDC Begins Registration for Annual MeetingThe World Diamond Council (WDC) opened registration for its seventh annual meeting, which will be held in St. Petersburg, Russia on July 14 and 15, 2010. Boaz Hirsch, the current chair of the Kimberley Process (KP), will be the keynote speaker.
FLO, ARM Certify Gold
The Fair Trade Labelling Organizations International (FLO) and the Alliance for Responsible Mining (ARM) developed the first-ever third-party independent certification for gold. Fairtrade and Fairmined gold will initially be launched in the U.K. with a long-term vision of capturing 5 percent of the global gold jewelry market in the next 15 years. This partnership creates a system designed to ensure that artisanal and small-scale miners can earn better prices for their gold.
In related news, ARM elected jeweler Toby Pomeroy as a new board member and welcomed sitting board member Dr. Maria Laura Barreto as its new chair.
Hong Kong Prohibits Rough Imports From Ivory CoastThe Diamond Federation of Hong Kong, China Ltd. (DFHK) informed the country’s diamond trade that importing rough diamonds from Ivory Coast was prohibited, according to a circular published by the Hong Kong government’s Trade and Industry Department. Those who do not follow this regulation in Hong Kong face “substantial penalties which may in some cases lead to imprisonment for seven years and/or a fine,” according to the statement.
The UN Security Council (UNSC) also upheld long-running diamond sanctions on the country through October, at which time the world body will review the embargo. The rough trade ban was approved on April 30, 2010 and is set to expire at midnight on October 31, 2010. For more information, visit DFHK’s website at www.dfhk.com.hk.
Botswana’s Diamond Exports Grow
Botswana’s diamond exports increased by 101 percent to $477 million during the first quarter of 2010, according to preliminary statistics compiled by the Bank of Botswana. January’s exports totaled nearly $253 million, but February’s exports were lower at $172 million. March was the weakest month, with exports of only $53 million. Though diamond exports increased compared with the first quarter of 2009, during the first quarter of 2008, exports stood at $924 million.
GIA Trains Law Enforcement Officers
Law officers from Brazil, Colombia, Belgium, India, Thailand, the U.K. and the United Arab Emirates (UAE) joined detectives from the New York and Los Angeles police departments and Federal Bureau of Investigation (FBI) special agents at the Gemological Institute of America’s (GIA) Carlsbad, California campus for a two-week crash course in gemology that was specifically requested by the FBI. The group was instructed in a broad range of gemstone topics, including how to use loupes, tweezers and microscopes; the 4Cs; synthetics, imitations and color treatments; the Kimberley Process (KP); and how to read GIA grading reports. Donna Baker, GIA’s president, explained that working with law enforcement officials is a very important aspect of GIA’s mission to protect the public trust.
Antwerp Diamond Bank Posts Loss
The Antwerp Diamond Bank (ADB) reported a net loss of $15.3 million (EUR 12 million) in 2009, compared with a profit of $37.9 million (EUR 29.7 million) in 2008. A statement from the bank noted that this is the first time in 25 years that ADB closed the fiscal year with a negative result. The loss was attributed to a $68.9 million (EUR 54 million) impairment made for doubtful debtors. ADB is the only lender that caters exclusively to the diamond and jewelry industry.
Kristall’s Profits DropKristall of Smolensk, Russia’s biggest cut and polished diamond producer, saw its net profit plummet 44 percent to $302,420 (RUB 8.9 million) in 2009 as the cost of servicing loans mounted, Interfax reported, citing a financial report from the state-owned production association. Sales edged up slightly to $263.5 million (RUB 7.8 billion) from $245.6 million (RUB 7.5 billion) in 2008. The cost of goods sold rose 5 percent to $241.2 million (RUB 7.1 billion), but gross profit fell 8.6 percent.
Sales to the Gokhran, the state’s precious metals and gemstones repository, accounted for 56.6 percent of Kristall’s entire sales in dollars, the news service said. Kristall sold 0.7 percent of its cut diamonds in the domestic market, 13.5 percent to Israel, 11.2 percent to the United Arab Emirates (UAE), 8.6 percent to the U.S., 4.6 percent to Hong Kong and 3.7 percent to Belgium. Kristall’s long-term debt was $1.4 million (RUB 444.2 million) and its short-term debt was $3.8 million (RUB 116 million) at the end of the year, with Sberbank and VTB-Northwest as the primary creditors. – Additional reporting provided by Acquire Media.
Lazare Kaplan Sues InsurersLazare Kaplan International Inc. (LKI) filed a federal lawsuit against various Lloyds of London syndicates and European insurers for $640 million on May 17, 2010. In a written statement, LKI explained that the suit arose out of the disappearance of diamonds that LKI alleges were insured by the defendants. The lawsuit states that the insurers breached two “all risk” New York property insurance policies and an agreement for interim payment, under which the insurers made a nonrefundable interim payment of $28 million to LKI in January 2010. After making this payment, LKI claims that the insurers reversed course and refused to acknowledge coverage or to pay any covered losses under the policies.
The complaint alleges, among other things, that the insurers, who also issued separate policies to LKI under English law, created a virtual coverage “whipsaw” by denying coverage under the English policies while at the same time, asserting that under the New York policies, there is no coverage because LKI insured the same property under the English policies. LKI’s statement noted that the company expects to conduct broad-ranging discovery around the world as the lawsuit progresses.
Article from the Rapaport Magazine - June 2010. To subscribe click here.