By and  on February 1, 2012

The PPR-owned Avenue has run out of road — at least for now.

Armed with a stalking horse bid from Versa Capital Management, the plus-size retailer’s parent, United Retail Group Inc., on Wednesday filed a voluntary bankruptcy petition in U.S. Bankruptcy Court for the Southern District of New York. The petition listed liabilities of $67.3 million and assets of $117.2 million.

URG is hoping to use the bankruptcy process to reduce the footprint of the Avenue chain to about 300 stores from the current level of 433. United Retail Group is owned by PPR’s Redcat USA division.

According to an affidavit signed by Dawn Robertson, chief executive officer, URG last year had a loss before interest, taxes, depreciation and amortization of $28.1 million, four times its 2010 EBITDA loss of $7 million. Sales last year fell 4 percent to $300.6 million from $313 million in 2010.

Versa, which acquired Bob’s Stores in 2008 after The TJX Cos. Inc. bought it out of bankruptcy in 2003, has offered consideration of about $35 million in its role as stalking horse, with contingencies that would allow it to recoup up to $20 million prorated based on the number of leases it assumes as a percentage of the 300-unit target. Pending court approval, Wells Fargo has pledged debtor-in-possession financing of $40 million.

Robertson told WWD that, following a court-supervised auction aimed at soliciting better offers than Versa’s, URG “hopes and expects to go forward with the majority of our stores and the majority of our people in place.”

In court papers, she said the company has 4,422 employes, 4,128 of whom are store associates and 45 of which are covered by collective bargaining agreements. All of its stores are leased and 42 are in New York.

With challenges compounded by the onset of the recession, PPR’s acquisition of URG more than four years ago never provided the synergies expected. “The retail market has changed a lot since then,” Robertson said. “A new buyer will help us resolve a lot of issues and renegotiate a lot of our leases, helping us to emerge stronger and improve our sales and profits.”

At the time of its acquisition, the company had 483 units and sales of $233.3 million for the six months ended Aug. 4, 2007.

URG acknowledged “operating losses driven by sales declines in retail stores that have not been offset by growth in the online business,” which last August relaunched under avenue.com after being part of Redcats’ Jessica London business.

The affidavit characterized Avenue as a “strong brand with a loyal customer base within the growing U.S. women’s plus-size market,” estimated at $18 billion, or about 17 percent of the total women’s apparel market. It also acknowledged missteps in merchandising and pricing, including an under-marketed move towards “everyday low pricing” prior to Robertson’s arrival in September 2010, The marketing failed to either attract new customers or boost the buying habits of existing ones.

New management was brought in under Robertson during the latter part of last year, with new plans for merchandising and marketing as well as brand positioning and pricing, but the ceo in her court declaration said the company doesn’t expect them to bear fruit until this spring.

Avenue has hardly been alone among plus-size retailers in its struggles. Charming Shoppes Inc., owner of Lane Bryant, engaged Barclays Capital to help it off-load its Fashion Bug unit, and Christopher & Banks Corp. is looking to trim its real estate portfolio by more than 12 percent.

Lane Bryant and Avenue have similar genealogies. Lane Bryant was purchased by Limited Brands in 1982 and sold to Charming Shoppes in 1999, while URG was formed by Limited Brands through the merger of Lerner Woman and Sizes Unlimited in 1987, two years before it was spun off as URG ahead of its 1992 initial public offering. Furthermore, Lane Bryant’s catalogue operations were sold to Redcats in 1993.

URG owes Redcats $48.5 million as a result of negative cash balances accrued as part of a “cash pooling arrangement.” While this amount is unsecured, Redcats is also owed a secured balance of $9.5 million under a second lien attached to receivables, inventory and other assets following Redcats’ election in November to no longer fund Avenue’s operations on an unsecured basis. The primary lien holder is Wells Fargo through a revolving asset-based loan facility. The $11.5 million in outstanding letters of credit will be rolled into the DIP facility.

Amounts owed to trade vendors totaled $23.1 million, with Valentine USA Inc. of New York holding the largest unsecured claim of nearly $2 million, followed by LF Centennial Pte of Singapore, a unit of Li & Fung, at $1.9 million. True Form, part of Maidenform Brands Inc., is owed $205,500.

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