Loehmann's, the US discount department store owned by Dubai World, has been given the green light to reorganise its debt and is expected to exit bankruptcy by the end of the month.
Judge Robert Gerber in New York approved the plan on Monday on a US$45 million (Dh165.2m) exit financing commitment, said Frank Oswald, Loehmann's lawyer.
"The plan eliminates about $114m of secured debt, it will infuse $25m worth of new money into the company, and they will leave bankruptcy as a 40-store chain with a much, much healthier balance sheet." The move will allow Loehmann's to continue trading normally, he added.
"Hopefully, they'll be good for the long haul," Mr Oswald said. "To have a traditional organisation and have the company come out of Chapter 11 as an ongoing concern is a great thing in these times."
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Istithmar, a private equity division of Dubai World, bought Loehmann's in 2006 for $300m.
The retailer, based in New York, filed for Chapter 11 protection, a provision of US bankruptcy law to seek protection from creditors, in November.
As sales declined and consumer spending on discretionary items such as designer goods fell, Loehmann's filed for bankruptcy after defaulting on $110m worth of debt. It has since closed several underperforming stores and cut staff, court documents show.
However, the retailer continues to trade. In the early stages of the bankruptcy reorganisation, Istithmar and Whippoorwill Associates, a major creditor, jointly agreed to pump $25m in fresh funds into the company. They proposed to keep Loehmann's running during its reorganisation with about $40m in new financing.
Its operations are currently funded through a $33m revolving credit facility with Crystal Financial and an additional $7m facility from Whippoorwill.
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The restructuring plan will allow Loehmann's to save $14m annually in interest expenses and $9m per year from underperforming stores that have been closed, Mr Oswald said.
In addition, general unsecured creditors are to receive a total of $2m under the plan.Loehmann's, founded in 1921, has 46 stores across the US.