United Retail Group Inc., the second plus-sized women's wear chain to go bankrupt in the last two years, filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan with five affiliates equipped with a $40 million debtor-in-possession loan and plans to sell its assets to Philadelphia private equity firm Versa Capital Management LLC.

The 433-store, Rochelle Park, N.J.-based United Retail, which wants the cases jointly administered, blamed its bankruptcy filing on operating losses driven by sales declines in retail stores that have not been offset by growth in its online business.

The debtor's "financial difficulties have been exacerbated by adverse economic conditions and a number of largely unsuccessful changes in product pricing and marketing, as well as a burdensome lease portfolio," court filings said.

United Retail's Chapter 11 filing comes a little after the Oct. 19, 2011, liquidation of Urban Brands Inc., which operated the Ashley Stewart plus-sized women's apparel chain.

Urban Brands filed for Chapter 11 on Sept. 21, 2010, in the U.S. Bankruptcy Court for the District of Delaware in Wilmington.

United Retail was taken private in 2007, when Redcats USA Inc. acquired its assets for $199 million, court papers said.

Redcats was funding the debtor through unsecured loans, totaling $48.5 million, but informed United Retail in late 2011 that it wouldn't provide any more unsecured funding to the company.

Instead, Redcats provided second-lien financing to the company on Nov. 22. United Retail owes $9.5 million on the second-lien debt.

Versa has made a roughly $37 million stalking-horse bid for United Retail. The PE firm will acquire substantially all of the debtor's inventory, its Troy, Ohio, distribution facility and at least 300 of its store leases.

Some $15 million of the DIP plus a $1.85 million letter of credit will be repaid with the sale proceeds, which will also be used for other purposes. Some $2 million of the sale proceeds will go for wind-down costs; $500,000 will be paid to unsecured creditors, $11.1 million will go to repay administrative and priority claims, $2.2 million in trade payables and up to $4.7 million in certain liabilities, court filings said.

Versa will guarantee to capitalize its acquisition vehicle with up to $35 million.

Through the sale, Redcats will pay Versa $20 million in cash for assuming its leases through the sale, court filings said.

United Retail hasn't yet filed a sale motion with the bankruptcy court.

The $40 million revolving DIP is from Wells Fargo Bank NA as the agent and Wells Fargo Capital Finance LLC as the sole lead arranger.

Wells Fargo Bank is owed $22.2 million, of which $11.5 million is in letters of credit, on a prepetition first-lien revolving asset-backed loan, dated July 28.

The prepetition letter of credit debt will be rolled up into the DIP, court documents said.

The DIP matures the earliest of 210 days from the petition date, the effective date of the plan and the closing of the sale of its assets.

The DIP is priced at a base rate plus 300 basis points. The base rate is the highest of 50 basis points over the federal funds rate, LIBOR plus 1% and prime. If the company defaults on the DIP, the interest rate increases by 200 basis points.

The DIP has a 0.5% commitment fee and an undisclosed closing fee.

The DIP requires that the sale order be filed at least 21 days after the petition date and the auction held 51 days after the filing date. The sale must close within 56 days of the bankruptcy filing.

Judge Stuart M. Bernstein will consider the interim use of its cash collateral and $25 million of the DIP, along with the joint administration of the cases, on Thursday.

United Retail operates stores that sell size 14 and up in the U.S., but is in the process of closing 14 of its stores. The stores are expected to be closed by the end of February.

For the fiscal year ended Dec. 31, the company had $300.6 million in sales and negative $28.1 million in Ebitda, compared with $313 million in sales and negative $7 million in Ebitda for the year ended Dec. 31, 2010. The debtor has 4,422 employees.

United Retail was founded in 1987 when Limited Brands Inc. combined its Lerner Women stores with its Sizes Unlimited store group. The consolidated chain was spun off in 1989 and renamed United Retail Group. The company went public in 1992.

Redcats USA is a Web-driven and home-shopping company with multiple brands in its portfolio, including The Sportsman's Guide, the Golf Warehouse, Jessica London and BrylaneHome, among others.

United Retail listed its assets at $117.2 million and its liabilities at $67.3 million.

The company's largest unsecured creditors include Valentine USA Inc. of New York ($1.95 million), LF Centennial Pte. Ltd. of Singapore ($1.91 million), Porta Asiatica Enterprise of Shanghai ($1.25 million), Vanity Fair Brands LP of Charlotte, N.C. ($793,006) and Garmex International Corp. of Charlotte, N.C. ($777,303).

Debtor counsel is Paul M. Basta, Marc Kieselstein and Nicole L. Greenblatt at Kirkland & Ellis LLP. Kieselstein refused to comment, while Basta and Greenblatt didn't return calls.

Counsel to Versa Capital is Hydee Feldstein, Michael H. Torkin and Alexandra D. Korry at Sullivan & Cromwell LLP.

Peter J. Solomon Co. is the debtor's investment banker and AlixPartners LLP is the debtor's restructuring adviser.