The retailer had been in discussions to issue new bonds as one financing option to get it through the pandemic.

(Bloomberg)—Gap Inc., No. 23 in the 2020 Digital Commerce 360 Top 1000, is seeking to raise $2 billion in the junk bond market as the clothing retailer looks to shore up liquidity amid disruption caused by the coronavirus, according to people familiar with the matter.

The company is offering $500 million of three-year bonds, $1 billion of five-year bonds that can’t be bought back for two years and $500 million of seven-year bonds that won’t be callable for three years, the people said, asking not to be identified because the matter is private.

Morgan Stanley is leading the sale of the debt, which may price as soon as Thursday.

The bonds will be secured by a first-priority claim on the company’s real estate, intellectual property and equity interests of some domestic units, the people said. Lenders would also have second-priority claim on other assets. Proceeds will be used to refinance existing notes maturing next year, repay outstanding amounts on the company’s revolving credit line and for general corporate purposes.


The retailer had been in discussions to issue new bonds as one financing option to get it through the pandemic, Bloomberg News reported earlier this week.

The company said in a regulatory filing Thursday that it may pursue a combination of new debt financing or other short-term credit facility to preserve liquidity over the next 12 months. It expects to have $750 million to $850 million of cash equivalents at the end of the fiscal quarter ending May 2.

“We are facing a period of uncertainty regarding the ongoing impact of the COVID-19 pandemic on both our projected customer demand and supply chain,” the company said in the filing. “We expect material impacts from the evolving COVID-19 pandemic, including further spread in other regions, meaningful deterioration from current trends, and potential disruption from any supply chain impacts.”

Gap has taken steps to preserve its balance sheet and counter expected losses from store closures. It deferred its April dividend payment to shareholders and suspended some rent payments. The retailer also drew down all of its $500 million revolving credit facility.


The retailer values its non-retail real estate assets at more than $1.4 billion and is in talks with its bank lenders about obtaining asset-based loans, chief financial officer Katrina O’Connell said on a conference call earlier this month.

Gap’s debt was cut two notches to junk territory last month by Moody’s Investors Service. The move came in response to the retailer’s declining cash flow as well as anticipated disruption from the virus. Gap had $1.7 billion of cash, cash equivalents and short-term investments as of Feb. 1, according to the filing.