By and and  on June 17, 2009

The difficulty of coaxing money — whether out of the coffers of lenders or the wallets of consumers — overwhelmed two more specialty store chains on Wednesday.

After a long struggle with declining sales and high levels of debt, Eddie Bauer Holdings Inc. and eight affiliates filed for Chapter 11 bankruptcy protection, while Abercrombie & Fitch Co. opted to shutter its 29-store Ruehl concept after a five-year run and a one-month strategic review.

The two retailers join a long list of chains hitting road bumps in the recession, from Steve & Barry’s to the D.e.m.o chain of Pacific Sunwear of California Inc., and are further proof — if any were needed — of the Darwinian nature of the current economy. Bauer has battled liquidity issues and sliding sales for several years, while Ruehl’s parent A&F needs to focus on its core operations and overseas expansion as it has been under fire for not being promotional and quick enough to adapt to changing consumer tastes.

Bauer has entered into a stalking-horse purchase agreement with the Rainier Holdings affiliate of CCMP Capital Advisors LLC, the private equity firm that owns Cabela’s and numerous other retail nameplates outside of fashion, to be acquired for $202 million in cash, with adjustments for working capital and other considerations. “Eddie Bauer is a good company with a great brand and a bad balance sheet,” said Neil Fiske, president and chief executive of the Bellevue, Wash.-based chain. “Unfortunately, a crushing debt burden placed on the company from the Spiegel reorganization in 2005, combined with the severe, prolonged recession, have left us with no choice but to use this process to reduce the debt load on the business.”

The CCMP deal is subject to an auction and approval from the U.S. Bankruptcy Court in Delaware.

Bauer, which operates 371 stores and saw its 2008 sales decline 1.8 percent to $971.3 million, was founded in 1920 and is considered one of the iconic names in outdoor and leisure apparel. The company became a stand-alone firm in 2005 as part of the reorganization of former parent Spiegel Inc., which filed for Chapter 11 in 2003. A deal to be acquired by affiliates of Sun Capital Partners Inc. and Golden Gate Capital for about $286 million was rejected by shareholders in February 2007, precipitating the departure of then-ceo Fabian Mansson.

Bauer’s bankruptcy petition listed between $100 million and $500 million in both assets and liabilities. Among the unsecured claims, the largest belongs to The Bank of New York, which holds a $75 million bond. U.S. Customs Service holds a $2.5 million claim.

The specialty chain has a $100 million committed debtor-in-possession financing facility from Bank of America, GE Capital Corp. and CIT Group/Business Credit. Bauer also filed under the Companies’ Creditors Arrangement Act in Canada in the Ontario Superior Court of Justice (Commercial List) because of its Canadian subsidiary, Eddie Bauer of Canada Inc.

Following news of the filing, ratings agency Moody’s Investors Service downgraded Bauer’s probability of default to “D” from “Ca.” Standard & Poor’s downgraded its credit rating to “D” from “CCC,” noting the financial covenants in its credit facility were “severely straining its liquidity.”

An affidavit from Marvin Toland, senior vice president and chief financial officer, noted Bauer underwent both a rapid growth period along with a slow erosion of brand identity as it shifted from an outdoor outfitter heritage to a casual apparel chain aimed at mature customers while under Spiegel’s ownership.

A&F has faced similar challenges in the last year as consumers have moved away from its core all-American fashion sensibility. Ruehl, the brainchild of A&F chairman and ceo Mike Jeffries, was meant to be different from the get-go, with Jeffries spinning the tale of its being founded by a German leather goods family that emigrated to New York decades ago. The stores were dark, and the storefronts, even in malls, were meant to resemble town houses. But in this economy such lore clearly doesn’t resonate with a consumer looking for markdowns over mystique.

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