Bendon's Nasdaq-listed owner Naked Brand Group's former route to a bail-out - former Bendon owner Eric Watson - is closed as it seeks to raise another $26 million by July.
Having breached its loan terms with Bank of New Zealand yet again, Naked can't go back to Watson, whose Cullen Group has injected capital in the past but is now dealing with its own issues.
Lingerie firm Naked's solvency remains a live question, with directors saying there's "substantial doubt" it can operate as a going concern. And if it can, it needs to raise at least $26 million between December and July next year, cut costs and fatten margins to achieve a positive cash flow by October, and renegotiate banking arrangements and creditors' terms.
Naked is operating with negative working capital after breaching the terms of its banking covenants and BNZ has the $20 million facility under review. Bendon was often in breach of its loan terms with BNZ, and it was only an effective guarantee from Watson's Cullen Group that prevented the funding line shrinking to just $10 million after the June merger with Naked to reverse-list Bendon.
Bendon had already drawn on Watson's fortune during the drawn-out Naked transaction, it providing capital in the form of convertible notes and shareholder loans with high interest rates.
However, multiple claims on his assets have seen Watson sell assets and dial back his domestic exposure, making Naked an unlikely benefactor in the future.
New Zealand's Inland Revenue Department is pursuing Watson's vehicle for almost $60 million of what it claims are unpaid taxes, plus interest and penalties. Also, former business partner Owen Glenn is seeking to enforce an English court judgment for $50 million against Watson after their acrimonious falling out.
Naked directors recognise the new situation, saying they've been told that "due to some changes with Cullen's financial circumstances, Cullen is not likely to be a reliable source of funding and, as a result, the directors have decided to pursue new capital raising activities and not rely on Cullen."
The company said management has already started exploring ways to raise capital for new inventory and has restructured the business to cut distribution costs and renegotiate supply arrangements. Naked said it will take some time before those initiatives improve the business, and it put off holding an investor briefing on its first-half earnings on Dec. 20 until next year.
Naked needs the funding to restock depleted inventory, the lack of which it blamed for a 5.1 per cent decline in revenue to $56.8 million in the six months ended July 31, and a 9.7 per cent drop in gross profit to $17.7 million, accounts filed with the US Securities and Exchange Commission show. Its first-half loss widened to $26.1 million.
The lingerie-maker started the half year knowing it had inventory issues. Its licence to sell Stella McCartney products ended on June 30, and it hoped to replace that with FOH Online - the Watson-owned global e-commerce licensee for Frederick's of Hollywood.
A sale was closed last month for US$18.2 million, although no cash changed hands with Naked forgiving NZ$12.8 million of debt owed by FOH and Cullen, and issuing almost 3.8 million Naked shares to FOH's vendors.
Those shares were priced at US$2.20 apiece, a substantial premium to the US$1.14 price at the time. Since then, Naked's stock has plunged, dropping from US$1.10 on Dec. 19, before it released its first-half results, to just 83 cents at Friday's New York close, valuing Naked at just US$21.6 million.
Watson took then-NZX-listed Bendon private in 2002, paying $1.90 a share, which valued the underwear maker at $58.7 million. Cullen's holding was diluted when it brought Australian lingerie firm Pleasure State into the fold.