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Filene's, Syms win cash collateral use

by Aviva Gat | Published November 7, 2011 at 2:01 PM

Discount retailer Filene's Basement LLC got everything it bargained for during its first day in bankruptcy court.

Judge Kevin J. Carey of the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Nov. 4 approved all of Filene's first-day motions, including requests to use cash collateral, continue using prepetition bank accounts, honor customer practices and pay prepetition wages and taxes.

Carey also approved a motion for joint administration of Filene's case with those of parent Syms Corp. and affiliates Syms Clothing Inc. and Syms Advertising Inc.

Carey is scheduled to convene a final hearing on the cash collateral motion on Nov. 22.

Discount shoe retailer DSW Inc. had objected to Filene's use of cash collateral, on the grounds that the proposed order and related budget did not protect its ownership interest in certain inventory under a consignment agreement. Filene's and DSW are party to a supply agreement dated Jan. 30, 2005, under which DSW provides merchandise for Filene's to sell. Filene's then gets to keep 26.5% of the proceeds from all of DSW's merchandise sold in its stores. According to DSW's objection, Filene's owed $370,000 to DSW under the agreement as of the Nov. 2 petition date.

Carey's order addresses DSW's concerns by stating that the vendor's rights to its claim are reserved in their entirety.

Filene's is scheduled to appear in court on Nov. 15 to seek approval to retain a joint venture of Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC to conduct going-out-of-business sales at all Filene's and Syms locations.

Filene's had hired Gordon Brothers on Oct. 12 to conduct a wind-down of five stores but has since decided to close all locations.

According to the Nov. 2 motion, the debtor was very reluctant to conduct the store closing sales but decided it is the only realistic course of action.

Filene's had been looking for a going-concern buyer for more than five months before it decided to stop the search so it could commence the liquidation before "Black Friday," the day after Thanksgiving, when large crowds are expected to take advantage of the sales.

The debtor said proceeds from the liquidation and Syms' real estate portfolio should be sufficient to provide a dividend to Syms' shareholders.

Filene's is a nationwide bargain store that started in the basement of Boston department store Filene's, where old ladies often fought over marked-down clothing or hid merchandise in hopes that it would be further discounted. The store, whose slogan is "where bargains were born," is also famous for its annual Running of the Brides event.

Syms is also known for its bargains, thanks to its throaty founder and spokesman, the late Sy Syms, and his oft-repeated motto that "an educated consumer is our best customer." His daughter Marcy now runs the discount seller of clothing.

Syms acquired Filene's during the company's second bankruptcy stay for $64.4 million on June 18, 2009.

Filene's thus is now in its third bankruptcy, but this time the store will liquidate, along with its parent.

Filene's first filed for Chapter 11 on Aug. 28, 1999. Then known as Filene's Basement Corp., the company was bought on March 18, 2000, by Value City Department Stores Inc. for $15 million in cash and $74 million in assumed debt. (Value City's new parent, Value City Holdings Inc., later commenced its own bankruptcy on Oct. 26, 2008, and liquidated.)

Filene's then filed its second petition, as Filene's Basement Inc., on May 4, 2009, with plans for another sale. During the second case, Syms purchased Filene's in a deal that included leases for 23 Filene's Basement locations as well as associated inventory, fixed assets and equipment; a distribution center in Auburn, Mass.; and certain other contracts, intellectual property and trade names.

According to a declaration by Syms CFO Gary Binkoski, the companies could not realize the synergies anticipated during the 2009 acquisition, which Syms then believed would lead to cost savings for both chains. Binkoski is a senior director of Alvarez & Marsal Holdings LLC and was appointed as Syms' CFO in July.

The debtors were also hurt by the economic downturn and intense competition from other discount stores and retailers, court papers show.

Collectively, the companies own and operate 46 stores. Syms also owns a facility in Secaucus, N.J., which serves as both companies' corporate offices.

Syms is publicly traded over the Nasdaq stock exchange under the ticker SYMS.

As of the petition date, the Secaucus company had 14.5 million outstanding common shares.

On Nov. 4, the stock closed at $9.30 per share, up from $7.67 the day before Syms filed for bankruptcy.

As of September, Filene's Basement and Syms had $236 million in assets, comprising $2.5 million in cash, $97.7 million in real estate, $65.8 million in merchandise and $70 million in other assets. Their liabilities totaled $94 million.

Filene's and its debtor affiliates all filed their Chapter 11 petitions on Nov. 2.

Mark S. Chehi, Jay M. Goffman, Mark A. McDermott, David M. Turetsky, Nancy A. Lieberman and Morris J. Kramer of Skadden, Arps, Slate, Meagher & Flom LLP are debtor counsel.

Bernard Douton of Rothschild is Filene's investment banker, and Alvarez & Marsal is its financial adviser.

Brett D. Fallon of Morris James LLP and Lee D. Powar, Nancy A. Valentine and Christopher W. Peer of Hahn Loeser & Parks LLP represent DSW.

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Filene's, Syms win cash collateral use

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