Loehmann's, the famous discount fashion retailer based in New York and owned by Dubai's Istithmar World, says it has signed a pact with a committee of creditors that will pave the way for its emergence from bankruptcy.
Under the plan, Istithmar and Whippoorwill Associates, the department store chain's main creditor, are pledging to inject US$25 million (Dh91.82m) into the company once it emerges from bankruptcy protection, Loehmann's said yesterday. Other creditors are to receive $2m to settle their claims.
"The creditors committee has agreed to fully support the proposed restructuring plan, which should pave the way for an expedited [bankruptcy] process," Loehmann's said.
It filed for bankruptcy last month as sales plunged at many of its outlets, jeopardising its ability to make payments on debt. The company's debt consists primarily of a $110m bond that comes due next year. Loehmann's missed a scheduled interest payment on that debt on October 1, touching off its bankruptcy filing.
Istithmar bought Loehmann's in July 2006 for $300m through a subsidiary called Designer Apparel Holding Company. As the company suffered during the financial crisis, Istithmar proffered a $55m credit line that the department store had fully drawn down as of April, court documents say.
In June, Loehmann's began working with the consulting firm Clear Thinking Group and Perella Weinberg Partners, an investment banking advisory company, to restructure the business and conserve cash. They managed to find between $4m and $5.6m of savings, but concluded that "savings alone would not be enough to address the company's $12m to $15m in liquidity needs in the next six to 12 months", according to court filings.
The US bankruptcy court has approved a total of $40m of financing to keep Loehmann's running as the reorganisation proceeds. With the agreement of its creditors' committee, Loehmann's expects to exit bankruptcy by a February deadline, the company said yesterday.
"Loehmann's continues with normal operations including special holiday promotions," it said.
With the injection of $25m by Istithmar and Whippoorwill and the conversion of Whippoorwill's claims into an equity stake in Loehmann's, the company's overall debt is expected to be reduced substantially. Istithmar will also lose a large portion of its stake in Loehmann's to Whippoorwill, although it is unclear how much of the company Istithmar will still own following the transaction.
Loehmann's, which operates dozens of stores in 13 US states and the District of Columbia, is continuing with an austerity plan adopted over the summer to adjust to consumers' changing appetites for designer clothes. It closed seven stores last month, court documents say, and will work on "streamlining store operations and eliminating corporate overhead costs by reducing headcount".