The $1.32 billion buyout of Linens 'n Things Inc. was touch and go from the beginning. The household goods retailer's business was shaky enough that Apollo Management LP imposed two limiting conditions when the take-private was announced in early November 2005: Fourth-quarter sales could not fall more than 6% from the prior year's level; and 2005 Ebitda had to be at least $140 million. Risk arbitrageurs and other investors were worried enough that the company would fall short of the thresholds that Linens' shares traded around $24, a stiff spread to the $28 per share deal.

In the end, Clifton, N.J.-based Linens met those targets, but its trend lines were not promising. Net sales for 2005 were up 1.2%, to $2.7 billion, but comparable net sales fell 5.9%.

When the deal closed in February 2006, financed by Bear Stearns Cos. and UBS Securities LLC, Apollo and its co-investors, NRDC Real Estate Advisors I LLC and Silver Point Capital Fund Investments LLC, put up $648 million of their own capital -- a 49% dose of equity that Linens plainly needed to give it some breathing room.

Apollo brought in a new CEO, Robert DiNicola, to lead a long-term revival of the nearly 600-store chain. But the company was a perennial second to Bed, Bath & Beyond Inc. and more than 110 of Linens' outlets were in Florida and California, where the housing slump would hit hard in 2007. By December 2007, Linens' bonds were trading at 55 cents on the dollar -- low even amid the debt panic of this past winter. Soon suppliers were demanding payment up front.

For the full year, same-store sales fell a troubling 3.1%, Linens' net loss deepened, from $154 million in 2006 to $242 million, and Ebitda swung from $61.5 million to negative $26 million. Net sales fell another 0.8% in the first quarter of 2008, and same-store sales declined 5.7%, sending Ebitda further into negative territory. In April, the company suspended payment on part of its debt and said it was talking with its creditors. Linens' 2014 bonds slipped to 40 cents.

The company wasn't able to reach an accord with creditors, however, and on May 2 its parent, Linens Holding Co., filed for Chapter 11.

It's not clear whether Apollo, NRDC and Silver Point's equity will be worth anything at the end of the reorganization, or if they will emerge with control at the end of the bankruptcy process.

"Until the business plans are done, you can't do a proper valuation," says Michael Gries, a principal at Conway Del Genio Gries & Co. LLC, which is advising Linens in the restructuring.

The first priority, he says, has been to close 120 stores, liquidate their merchandise and negotiate with suppliers to make sure Linens has enough inventory for back-to-school season. Balance sheet matters will come later.

Scott Hazen, a lawyer for unsecured creditors, would not say whether Linens' shareholders will see anything in the restructuring. Telephone calls to Linens' lawyers at Richards, Layton & Finger PA were not returned.

There have been persistent reports and rumors that Apollo has bought up Linens debt in the secondary market at steep discounts, possibly laying the ground to swap that for new equity in the reformed, post-Chapter 11 company.

Apollo's spokesman declined comment, but Gries says Apollo has told him it has not been buying up debt. "I believe them," he says. "I have no evidence that they do [own Linens debt]."

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