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W&L Files For Bankruptcy

NEW YORK -- Woodward & Lothrop, one of the last over-leveraged retailers to remain outside the bankruptcy courts, finally succumbed to its debt load and entered Chapter 11 proceedings Monday.<BR><BR>This confirms reports in these columns on Jan....

NEW YORK — Woodward & Lothrop, one of the last over-leveraged retailers to remain outside the bankruptcy courts, finally succumbed to its debt load and entered Chapter 11 proceedings Monday.

This confirms reports in these columns on Jan. 13.

The filing, made in New York while the court was officially closed in observance of Martin Luther King Jr. Day, was reminiscent of Federated Department Stores, which opened the Cincinnati court on the same holiday four years ago to make its bankruptcy filing.

The W&L petition lists total liabilities of $659.4 million and assets of $608.2 million. To assist in the reorganization, W&L said it has lined up, subject to bankruptcy court approval, a $300 million debtor-in-possession financing package from CIT Group.

Meanwhile, Arnold H. Aronson resigned as chairman and chief executive officer, following an unsuccessful attempt to acquire the 113-year-old Washington, D.C., retailer in the last few weeks.

In a telephone interview, Aronson said his recent effort to acquire the company was part of an agreement with Taubman made five years ago when he came on board. “It was decided that should ownership or other things change I could have a crack at the company,” said Aronson, adding that he lined up a group of unidentified “brand name” equity investors and investment bankers three months ago.

However, the offer, which he proposed a few weeks ago, failed for a variety of reasons, which Aronson would not reveal. “The company had a lot of promise, and I would have liked to have taken it outside Chapter 11,” he said.

Prior to the Chapter 11 filing, management owned 16 percent of the company stock, while Taubman owned 84 percent.

Aronson declined to elaborate on his future plans, only saying that he would be returning to New York City, where he owns an apartment.

Aronson, who joined the chain in 1989, is succeeded by Robert B. Mang, W&L’s president and chief operating officer since 1991. Robert J. Mulligan, vice chairman of W&L, has been given the additional title of chairman of Woodward & Lothrop Holdings Inc. and will oversee the chain’s reorganization.

Mulligan said in a statement, “Our highly leveraged balance sheet has generated increasingly burdensome levels of debt and interest expense which, over the past several years, have made it extremely difficult to operate our business competitively. The filing will also allow the orderly restructuring of that debt, much of which was incurred during the mid-1980s and, as a result, carries very high interest rates.” Sources said W&L has $101 million in debt coming due next year stemming from its acquisition and subsequent purchase of the John Wanamaker chain. A. Alfred Taubman took control of W&L in a 1984 leveraged buyout for $218 million. In 1986, the chain bought Wanamaker’s for $180 million from Carter Hawley Hale Stores.

Taubman has been funding the chain’s losses for a few years but reportedly pulled the plug on the company over the weekend and did not make an expected $50 million capital injection.

Taubman, who also owns Sotheby’s, has a $262 million unsecured claim — by far the company’s largest creditor.

In a statement, Taubman said: “While I know that Woodward & Lothrop’s Chapter 11 filling was a difficult decision for all involved, as a director, investor and major creditor, I’m confident the action was both necessary and in the best long-term interest of the company and its many constituencies.

“I have supported Woodward & Lothrop over the past several years through a very difficult and unforgiving economic environment in the hope and expectation that as its operating results improve, the company would be able to attract the capital necessary to restructure its burdensome debt.

“Despite strengthening store performance and extraordinary efforts by management, it is now clear that this will not be able to be accomplished without the protection of the court.

“I wholeheartedly support management’s efforts to see that a strong, competitive Woodward & Lothrop emerges from the reorganization as soon as possible.” W&L said there are no plans to close any of its 19 Woodward & Lothrop and 16 John Wanamaker units and denied rumors that they would be sold.

However, analysts are not as optimistic.

Frederick H. Taylor, director of corporate bond research at Salomon Bros. said May Department Stores Co. might be interested in converting Wanamaker’s to Lord & Taylor or Hecht’s stores. He added that there’s been speculation that Dillard Department Stores Inc. and Belk’s are interested in buying the Woodward & Lothrop chain.

Taylor said W&L can’t produce enough sales to cover its costs. “The problem is that Woodies needs to generate more sales to cover its fixed costs, but it does not have the scale to do so,” he said.

W&L has $36 million in cash flow on sales of $850 million, according to Taylor. “That figure should really be $70 million,” he added. W&L lost $39.5 million on sales of $855 million in 1992, according to trade sources.

Meanwhile, it was quiet at the store’s flagship unit at 11th and G Streets on Monday, though it was partly due to the snowstorm that kept shoppers away. Store clerks refused to talk to a reporter about the filing, but shoppers there were not surprised by the news.

Some were a little sentimental. “I’ve been shopping here for 40 years,” said a D.C. resident as he rummaged through a heap of socks whose prices were reduced by 50 percent. “Of course, I feel sad. “

W&L’s major unsecured creditors include Chemical Bank, with a claim of $83.5 million; NationsBank, $2.4 million; Crystal Brands, $1.1 million; Alfred Dunner, $1 million; Auarfin Corp., $788,006; Lancome, $679,449; Sealy/Stearns & Foster, $653,070; I.J. Selling Jewelry, $621,149; Estee Lauder, $603,629; Haggar Apparel, $588,315; Monet, $569,659; The Leslie Fay Cos., $492,506; W. Weber Co Inc., $489,230, and Swank, $447,600.