FORTUNE — Private equity firm Sycamore Partners has come to the aid of troubled teen clothing retailer Aeropostale, extending on Tuesday a much-needed $150 million line of credit that alleviated fears that the teen apparel chain would face a near-term cash crunch while sales continue their freefall.
Last week, Aeropostale reported an 83.3% drop in cash reserves compared to a year earlier, to $24.5 million as of May 3. It also said comparable sales, which blend online sales with revenue from stores open at least a year, fell 13% in the first quarter. The dire results, coming off a 15% drop in comparable sales for all of 2013, led a Morgan Stanley analyst last week to wonder about Aeropostale’s prospects as “a going concern.”
Aeropostale shares rose 16% to $3.92 Tuesday, still well below a 52-week high of $15.73.
Barclays Capital analyst Matthew McClintock in a research note said the “cash infusion should go a long way in alleviating any near-term concerns for investors.”
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Aeropostale, like its close rivals American Eagle Outfitters (AEO) and Abercrombie & Fitch (ANF), has struggled to keep up with young shoppers’ changing tastes and spending habits. But Aeropostale wares are lower-end than those of its competition, forcing it to discount prices deeply to try to keep more business.
Aeropostale’s business has been in decline for several years. The retailer, which began life in the early 1980’s as a private label brand developed by Macy’s (M)to appeal to young men, saw sales per square foot fall from $624 in 2009 to $445 last year despite many store closings.
Under terms of their deal, Aeropostale issued Sycamore convertible preferred stock, giving it the right to acquire up to 5% of Aeropostale shares for $7.25 apiece. Sycamore already owns 8% of Aeropostale shares. The deal also gives a Sycamore-owned company a big new customer– Aeropostale has committed to buy a certain amount of merchandise from MGF Sourcing, in which Sycamore took a controlling interest in 2011, each year for ten years. Sycamore’s managing director Stefan Kaluzny, will also get a seat on the Aeropostale board.
Sycamore’s credit facility is the latest deal by a buyout firm which specializes in struggling retailers. Sycamore took Jones Group private earlier this year in a $1.3 billion deal. Last year, it bought Hot Topic for $600 million, and in 2012, acquired women’s apparel chain Talbots for $391 million.
