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Syms, Filene's Basement can't bargain for a better day

by Aviva Gat | Published November 3, 2011 at 10:19 AM

The end of an era began Wednesday, Nov. 2, for bargain shoppers, as Filene's Basement LLC and Syms Corp. filed for bankruptcy and will use the upcoming holiday shopping season to liquidate.

Both companies filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware, with the Filene's case being the lead one. Syms is actually the parent company, having acquired Filene's out of its second bankruptcy stay for $64.4 million on June 18, 2009.

Filene's, a department store that was once a Boston institution, was also famous for its basement, where old ladies fought over marked-down clothing and the store ran an annual "Running of the Brides" event. Filene's then expanded the bargain-basement concept nationwide.

Syms, too, had gained renown, thanks to its throaty founder and spokesman, 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.

The companies filed several first-day motions with their petition, including requests to use cash collateral, continue using prepetition bank accounts, honor customer practices and pay prepetition wages and taxes. The debtors are also seeking joint administration with Syms Clothing Inc. and Syms Advertising Inc.

Judge Kevin J. Carey will consider the motions on Friday, according to debtor counsel Mark S. Chehi of Skadden, Arps, Slate, Meagher & Flom LLP.

Wednesday's petition marks the start of Filene's third bankruptcy proceeding. This time, however, the retailer will liquidate during the upcoming holiday season, giving shoppers one last chance to snag merchandise at a fraction of its price.

Chehi said the bankruptcy will be a "relatively prompt" case and that shareholders can expect some value for their shares from the liquidation.

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.

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 Gary Binkoski, the chief financial officer of Syms, the companies were unable to realize the synergies anticipated during the 2009 acquisition, which Syms believed would have led to cost savings for both chains. Binkoski is a senior director of Alvarez & Marsal Holdings LLC and was appointed as Syms' CFO in July.

Binkoski also said the economic climate and rigorous competition among retailers, especially discount stores, contributed to the debtors' declining revenues.

The companies have experienced significant operational losses since the deal's closing.

Trade creditors also became wary of the debtors' future and restricted trade credit, which lowered the amount of merchandise they carried and reduced their liquidity. For the fiscal year ending Feb. 26, the companies' losses before income taxes were $51.7 million combined.

The companies reported a $16.7 million loss for the 26 weeks ending Aug. 27.

The debtors tried to improve their financial conditions prior to filing for bankruptcy and hired Alvarez & Marshal in March to help their performance. Syms also retained Rothschild and Cushman & Wakefield Inc. to help evaluate options, including a possible sale. The companies contacted potential strategic or financial buyers, but none submitted a bid, Binkoski said.

In the past fiscal year, the debtors closed two underperforming Syms stores and one Filene's store, and also began the wind-down process for five other Filene's stores. Filene's retained Gordon Brothers Retail Partners LLC on Oct. 12 to liquidate the five stores, which all have leases set to expire in December, Binkoski explained.

Despite these efforts, losses continued and trade vendors continued to tighten credit terms, leading Filene's and Syms to project that their liquidity could run out as early as mid-November, or January at the latest.

Filene's and Syms then decided to wind down their retail business promptly to capitalize on the holiday shopping season. The debtors concluded that delaying the liquidation until after the holidays would result in significant losses of at least 10% to 20% in what they'd recover on their inventory.

Documents show the company plans to liquidate the retail business and commence a separate process to maximize the value of Syms' real estate.

Founded in Boston in 1909, Filene's Basement started as a way for the upstairs department store to sell excess merchandise at reduced prices. The longer items remained unsold in the basement, the lower their prices became.

According to the company's website, shoppers frequently participated in tug-of-war contests over coveted items, hid merchandise in hopes it would be further marked down and changed in the aisles even after fitting rooms were installed.

Syms, founded in 1958, also sells discount merchandise including clothing and jewelry.

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

On Tuesday, the stock closed at $7.67 per share.

The debtors are party to a $75 million revolving line of credit extended by Bank of America NA on Aug. 27, 2009, and set to mature Aug. 27, 2012.

As of petition date, they owe $31.3 million under the revolver and $11.1 million under letters of credits under the loan.

As of September, Filene's Basement and Syms had $236 million in assets, comprised of $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.

Along with Chehi, Jay M. Goffman, Mark A. McDermott, David M. Turetsky, Nancy A. Lieberman and Morris J. Kramer of Skadden are also debtor counsel.

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