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Kellwood Faces Midnight Default Deadline

Kellwood talks become urgent as $140M in notes are due to mature at midnight tonight.

Round-the-clock talks between Kellwood Co. executives and bondholders took on extra urgency Tuesday as the company tried to avoid defaulting on $140 million in notes that mature at midnight tonight.

Sources familiar with the negotiations said St. Louis-based Kellwood was unlikely to make an immediate decision on what action to take in the event of a default, hoping to resolve an impasse with Deutsche Bank, its largest noteholder, and avert a bankruptcy filing.

Deutsche Bank, reversing its earlier support, has remained adamant in its opposition to the proposed exchange offer on the table, even though its representatives were instrumental over the course of a month in negotiating revised note terms. The offer would swap the notes coming due for new ones that extend the maturity to 2014 and include an interest rate almost double the original rate.

Kellwood officials declined comment on the negotiations Tuesday. Deutsche Bank did not return calls seeking comment.

A financial source said if Deutsche Bank walks away and Kellwood is forced into bankruptcy, the German bank may be able to recoup its investment if it has credit insurance to cover the loss. If so, Kellwood would be left with little or no leverage.

However, a bankruptcy filing would leave the other noteholders who have said they would accept the swap in the position of creditors of the apparel firm.

On Monday, Michael Kramer, Kellwood’s president and chief executive officer, said company was “surprised and disappointed” by Deustche Bank’s opposition considering “they were on our bondholder steering committee, helped structure the deal and told us all along that they supported it.” He described Kellwood’s operations as profitable, with positive cash flow, and pledged the company would continue to ship its customers on time.

An affiliate of Sun Capital Partners Inc., Sun Capital Securities Group, acquired the apparel firm for $762 million in February 2008 after a hostile takeover bid.