Signet Jewelers recently logged “two significant financial milestones” that will buff up its once-beleaguered balance sheet, it said Tuesday.

First, its $1.5 billion asset-based lending facility has been extended by nearly two years, until July 2026. The new facility contains less restrictive covenants and will allow Signet to further invest in the business, chief financial officer Joan Hilson (pictured) said in a statement.

In addition, Signet is—again—completely divesting its credit portfolio, after having to carry non-prime receivables on its books for three quarters following the onset of the COVID-19 pandemic.

Since 2017, the company has tried to fully outsource its credit, but it took a while for it to find a buyer for the riskiest part of its portfolio, the non-prime receivables. In 2018, two funds—CarVal Investors and Castlelake—agreed to purchase all nonprime receivables at a discounted rate.

In March 2020, as the COVID-19 pandemic engulfed the world, CarVal—which held 70% of the receivables—got cold feet and called off the deal. As a result, Signet funded the non-prime receivables that were generated from April 23, 2020, to January 11, 2021. Two years after Signet exited the credit game, it now again had non-prime receivables on its books.

In January 2021, CarVal and Genesis, the company that services the non-prime portfolio, signed a new agreement to handle Signet’s future non-prime receivables. But Signet still had those old debts on its books.

Now, the company has inked a new deal with CarVal and Castlelake, in which the two companies agreed not only to take on Signet’s future non-prime debt, but also to shoulder the receivables that accumulated while the deal was dead.

The new arrangement will run through June 30, 2023, and “represent[s] the final step in fully outsourcing Signet’s credit offerings and removing consumer credit risk from its balance sheet,” the company said in a statement.

“These actions, as well as S&P’s recent upgrade of Signet’s issuer credit rating resulting from our enhanced financial profile, demonstrate the progress we are making with our Inspiring Brilliance growth strategy,” said Hilson in the same statement.

In its rating update, S&P said that Signet’s “first quarter exceeded our expectations, and we think its prospects for the next 12 months remain good.”

Signet’s zeal to purge consumer credit from its books is a relatively new development. For years, it managed its credit in-house—a setup that was rare for a major retailer. But while the credit business was hugely profitable, analysts started raising questions about the amount of subprime debt the company was carrying, leading to Signet’s eventual decision to offload its credit division.

(Photo courtesy of Signet Jewelers)

 

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