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Leslie Fay Grapples with New Tactics to Satisfy Creditors

NEW YORK -- Struggling to come up with a reorganization plan, The Leslie Fay Cos. said Monday it is "considering a number of options" to placate creditors and set the firm on sound financial ground.<BR><BR>Among the options under review, a company...

NEW YORK — Struggling to come up with a reorganization plan, The Leslie Fay Cos. said Monday it is “considering a number of options” to placate creditors and set the firm on sound financial ground.

Among the options under review, a company spokesman said, is to emerge from Chapter 11 as “a stand-alone company,” or “the sale of some piece of the business.” Leslie Fay has been operating in Chapter 11 since April 1993.

Meanwhile, company officials denied persistent reports that it is considering a selloff of the Leslie

Fay name. John J. Pomerantz, Leslie Fay’s chairman and chief executive officer, said that such a scenario was “outright not one of the things being considered.”

A joint statement issued Monday by the company and its equity and creditors commitees said “no decisions have been made with reference to the sale or disposition of any significant line or lines of business.”

Right now, the company is looking to buy some time and Thursday will ask the bankruptcy court for an extension to file its business plan. The company has revised its financial forecast downward three times in the last few months, and now expects to report “a substantial operating loss for the year.”

The 47-year-old company — founded by Pomerantz’s father, the late Fred Pomerantz, and named for his sister — wouldn’t say how deep the loss would be, but said it would not be as bad as last year’s $32.6 million operating loss.

In October, the company closed its Theo Miles omnibus division after it failed to perform at retail. Laura Pomerantz, senior vice president in charge of the division and the wife of John Pomerantz, consequently left the firm.

A hearing will be held Thursday to rule on Leslie Fay’s motion to extend until Feb. 17 its exclusivity period for submitting a business plan to the court. The motion for more time says that Leslie Fay needs to complete negotiations with creditor and equity committees in order to finish its business plan.

This will be the third time the company has asked for an extension of its exclusivity period.

According to the motion filed by Weil, Gotshal & Manges, Leslie Fay’s counsel, the company, its creditors and equity committees are discussing “reorganization alternatives” related to “financing, corporate structures, tax ramifications and the level and type of distribution to creditors and equity interests.”

A key aspect of the negotiations is the proposed buy-back of the Sassco division by an investment group headed by Sassco chairman Arthur Levine, who sold the company to Leslie Fay in 1979. A source close to the situation said that announcement “could happen in the next two weeks.”

However, the Leslie Fay spokesman said that timeframe was “questionable,” considering that the reorganization plan would not be ready so soon, and that any such sale would only come as part of the plan.

Sassco, which makes Kasper suits and dresses, the Le Suit line and the Albert Nipon Suits and Nolan Miller lines, is the company’s largest unit, accounting for some $335 million of Leslie Fay’s $660 million in sales last year.

Despite the company’s denial that it might sell the Leslie Fay name, rumors persist that a number of companies have inquired about a possible acquisition. The companies most frequently said to show interest in acquiring the Leslie Fay brand are Kellwood Co. and Liz Claiborne and, to a lesser extent, VF Corp.

Kellwood is not only the most often-cited candidate, it is considered the most likely to make such a deal. While Claiborne was also interested, sources said, it might not have the finances to swing a deal. As for VF Corp., the interest in Leslie Fay might not have been sustained once initial inquiries were made.

“I haven’t done diddly about Leslie Fay and don’t know a thing about it,” Lawrence Pugh, chairman and chief executive officer of VF Corp., said Friday.

A spokeswoman for Liz Claiborne said, “It is corporate policy not to comment on rumors.”

Kellwood, however, has been on the acquisition trail lately, snaring dressmaker Halmode Apparel in September and sportswear house David Dart in October. Executives at Kellwood could not be reached for comment.

Meanwhile, Leslie Fay is striving to rejuvenate its core dress business.

John Ward, president of the Leslie Fay Dress Group, which is the biggest area of the company after Sassco, said the company is looking forward to a resurgence in 1995. Once the lifeblood of the firm, the dress division has been criticized by retailers and analysts for being too old-fashioned and for not updating its image.

“Our biggest challenge is to take the whole moderate, classic market and update it with enough fashion newness wherever we can, while protecting our core classics business,” Ward said. “We’ve seen the whole sportswear influence on dresses, and through diversification of product, we’re dedicating one-third of the line to new, updated styles.”

While Ward wouldn’t comment on business with specific retailers, sources indicate the company’s move to start selling J.C. Penney this fall is paying off and could give a boost to its dress and sportswear business.

One key look from the updated spring group that’s booking well, Ward said, is a polyester and rayon crepe group of fitted dresses with skinny belts, which the company has interpreted from the spring designer runways. Overall, the company has reduced its prices about 8 percent, with an average wholesale price for spring of $41.

Ward also said that the company is in the process of implementing a fast-turn response facility at its dress plant in the Wilkes-Barre area of Pennsylvania as an important strategy to cut production lead time.

In June, union workers at that plant and other facilities went on strike after the company and the ILGWU failed to reach agreement on a new three-year contract. Prior to the strike, Leslie Fay announced it wanted to close its domestic production sites in favor of imports.

The six-week strike ended under the mediation of William Usery Jr. with a compromise that called for Leslie Fay to keep half its domestic work force intact. The revamping of the dress factory into a fast-turn plant was part of the agreement reached with the ILGWU.

Leslie Fay’s troubles began in February 1993, when it revealed an accounting fraud had falsely stated earnings for three years, from 1990 through 1992, to the tune of $119 million, according to the U.S. Attorney’s Office in Scranton, Pa., which is investigating the fraud. Two months later, the company was forced to seek protection from the bankruptcy courts when its credit dried up.

The company’s former controller, Donald F. Kenia, has pleaded guilty to filing false financial statements with the Securities and Exchange Commission and is cooperating in the ongoing investigation by the U.S. Attorney’s Office. Kenia’s plea agreement stipulates that his sentence will depend on his “level of cooperation.”