06/23/2015 12:16 EDT | Updated 06/23/2016 05:59 EDT

Le Chateau Gets A Bailout From Founder Herschel Segal, Again

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MONTREAL - Le Chateau is once again turning to its founder to finance the fashion retailer's operations and store renovations.

Instead of tapping banks, Herschel Segal is providing a $15-million loan on top of the $10 million the majority shareholder forked over previously.

The loans are secured by the company's property and rank only behind its $800-million revolving credit facility. They will earn the lesser of double the Royal Bank's prime rate or 7.5 per cent.

The 55-year-old Montreal-based company has repeatedly turned to Segal and his wife, Jane Silverstone Segal, who replaced him as chairman and CEO, for financial support.

Industry experts say companies only turn to their owners for funding if the investor can earn greater returns than other investments or as a last resort. Segal is also a leading investor of David's Tea, which recently went public.

Le Chateau didn't return immediately requests for comment.

Like many fashion retailers, Le Chateau has struggled financially in the face of foreign competition that has killed several chains.

Its net loss more than doubled to $38.7 million last year, marking its fourth consecutive annual loss. Revenues fell 8.9 per cent to $250.2 million.

In the three months ended May 2, sales decreased 4.8 per cent to $50.8 million as comparable store sales were down 6.2 per cent despite a 25 per cent increase in online sales. Its first-quarter loss was slightly lower at $12.4 million.

Le Chateau has been closing underperforming stores and renovating others as it introduces a new store concept. But retail analyst Randy Harris of Trendex said Le Chateau needs to pick up the pace on closing unprofitable stores and modernizing existing stores.

Le Chateau clothes, accessories and footwear are sold in its 220 stores, including one in the United States. It also has four stores under licence in the Middle East.

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