Barneys gets new owner in debt-for-equity deal

NEW YORK (Reuters) - Barneys New York Inc has struck a deal with Perry Capital, its largest lender, that will erase most of the luxury chain's debt and turn the hedge fund into its majority owner.

Under a debt-for-equity swap with Perry Capital, as well as other lenders, Ron Burkle's Yucaipa Cos and current owner Istithmar World, the chain's long-term debt will fall to $50 million from $590 million, Barneys said on Monday.

Barney Chief Executive Mark Lee said in a statement that the deal frees up cash for revitalizing its stores and improving its e-commerce site.

Jones Group Inc sold Barneys for $942 million in 2007 to Istithmar World, the investment arm of state-owned Dubai World . That acquisition left Barneys with a $660 million debt load.

The upscale chain's sales swooned during the financial crisis of 2008-09, when well-heeled shoppers pulled back on luxury spending. But like Saks Inc , Nordstrom Inc and Neiman Marcus Group , Barneys' sales have rebounded in the last two years.

In 2011, comparable sales rose by a double-digit percentage, Barneys said.

Barneys, which operates nine department stores, including a flagship on Manhattan's Madison Avenue and a chain of less expensive co-op stores, said in February it had hired a restructuring firm to help it with debts coming due this year.

The following day, on February 9, Standard & Poor's lowered Barneys' credit rating to 'CC' from 'CCC,' saying its debt level was "unsustainable."

(Reporting By Phil Wahba in New York)