Loehmann's in bankruptcy deal

Dubai: Istithmar-owned US retailer Loehmann's yesterday said it has filed for bankruptcy with a New York court in a ‘pre-arranged deal' to reduce its debt by $115 million (Dh422 million) following restructuring.

In a statement obtained by Gulf News the New York-based Loehmann's Capital Corp and its affiliates said they have "commenced voluntary ‘pre-negotiated' Chapter 11 proceedings in the US Bankruptcy Court for the Southern District of New York".

Loehmann's, founded in 1921 by Frieda Loehmann, sells clothes from brands such as Michael Kors, Calvin Klein, Donna Karan and Diane von Furstenberg at steep discounts at more than 55 US stores in 16 states.

The company last month said that it didn't get enough support for the senior secured credit notes and it wouldn't make an interest payment on the securities.

"The company took this action after reaching agreement with Whippoorwill Associates, Inc., as agent for discretionary funds and accounts, which represents approximately 70 per cent of its senior secured notes, and its equity sponsor, Istithmar World, on the framework of a restructuring plan that will substantially reduce the company's debt and recapitalise its balance sheet," the statement said.

It has both assets and liabilities in the $100 million to $500 million range. The company listed four affiliates in the filing.

Istithmar, the investment arm of Dubai World, bought Loehmann's in 2006 for $300 million. Andy Watson, acting CEO of Istithmar World, said, "We look forward to working constructively through this process and achieving a consensual restructuring."

Istithmar, along with Whippoorwill Associates Inc, will invest $25 million in the company once it exits Chapter 11, the statement said. Under the restructuring plan, Loehmann's will transfer 51 per cent of its new equity to its creditors while it retains 49.1 per cent of the company along with Istithmar and Whippoorwill.

"Under the terms of the restructuring support agreement between the parties, Series A noteholders would receive approximately 42.4 per cent of the reorganised equity, Series B holders will receive 8.6 per cent of the reorganised equity and new investors will receive 49.1 per cent of the reorganised equity, all on a fully converted basis," it said.

Loehmann's said, it has obtained a commitment from its existing credit facility lender, Crystal Financial, to provide a $45 million debtor-in-possession financing facility.

"The company expects to complete its pre-arranged restructuring and emerge from Chapter 11 during the first quarter of 2011," it said.

Rating agency Standard and Poor's earlier said, ‘mixed signals' in the retailing sector raise "some questions about the underlying strength of consumer activity in the current economic recovery".

"Although the short-term performance of credits in the retail sector does not have a direct correlation with consumer spending, we believe the direction of recently issued credits may provide investors some insight as to where the market thinks consumer activity could be headed," it said in a recent report.