Loehmann's Capital Corp., the parent of the off-price chain, commenced voluntary “pre-negotiated” Chapter 11 proceedings in the U.S. Bankruptcy Court for the Southern District of New York.
Loehmann's said it took this action after reaching agreement with Whippoorwill Associates, Inc., which represents approximately 70% 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 recapitalize its balance sheet.
The supporting noteholders have agreed, among other things, to vote in favor of the company's pre-negotiated plan and exchange their notes for common equity. In addition, Istithmar World and Whippoorwill have agreed, subject to the satisfaction of certain conditions, to invest an aggregate amount of $25 million in the Company upon its emergence from Chapter 11 in the form of a convertible preferred equity stake.
Under the terms of the restructuring support agreement between the parties, Series A noteholders would receive approximately 42.4% of the reorganized equity, Series B holders will receive 8.6% of the reorganized equity and new investors will receive 49.1% of the reorganized equity, all on a fully converted basis, subject to dilution for any new equity issued as part of a management incentive plan. The recovery to unsecured creditors is not estimated at this time pending the filing of claims by such creditors.
In addition, Loehmann's 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. The proposed Chapter 11 restructuring is subject to a number of conditions, including execution of definitive documentation, receipt of necessary creditor votes and approval by the bankruptcy court.
Given these capital commitments, the company will have sufficient liquidity and the financial flexibility to fund daily operations without interruption, including payments to essential vendors, customers and employee obligations.
The company has hired Perella Weinberg Partners as its investment banking financial advisor, Togut, Segal & Segal LLP as Chapter 11 counsel, and Clear Thinking Group as operational consultants to assist in its restructuring efforts.
