WWD.com/business-news/financial/kellwood-pushes-for-debt-deal-2211206/
government-trade
government-trade

Kellwood Pushes for Debt Deal

Lower-priced, moderate fashion company Kellwood seeks to avert bankuptcy as Wednesday deadline looms.

Kellwood Co. raced the clock Monday, exploring its financial options and negotiating with key bondholder Deutsche Bank to avert bankruptcy by restructuring $140 million in obligations, which comes due midnight Wednesday.

This story first appeared in the July 14, 2009 issue of WWD.  Subscribe Today.

Michael Kramer, president and chief executive officer of Kellwood, said the apparel company was “actively exploring a number of alternatives to strengthen our long-term financial position,” but did not offer specifics. However, he said the process could take up to a month.

“We are surprised and disappointed by Deutsche Bank’s current position as they were on our bondholder steering committee, helped structure the deal and told us all along that they supported it,” said Kramer, who was executive vice president and chief financial officer of Abercrombie & Fitch Co. when he was tapped to take the helm at Kellwood last July,

“This comes at a time when Kellwood is performing well, is profitable and has a positive cash flow,” he said. “Our operations and supply chain are strong. We are shipping to our customers on time and will continue to ship to our customers on time….The bottom line is that it is business as usual at Kellwood.”

Eric Hunter, senior vice president of marketing at Kellwood, said the company was not ruling anything out as it surveyed its options.

A spokeswoman for Deutsche Bank declined to comment.

For two months, Kellwood has been trying to arrange an exchange that would swap out the bonds coming due for debt maturing in 2014. The St. Louis-based firm said Deutsche Bank, its largest bondholder, supported the exchange, but changed its position on Friday, making bankruptcy a real possibility for Kellwood.

If it’s business as usual at Kellwood, acquired by an affiliate of Sun Capital Partners Inc. for $762 million in February 2008, it might simply be that the firm has become accustomed to life between the various rocks and hard places in the fashion industry.

Founded in 1961 through the merger of 15 suppliers of Sears, Roebuck & Co., Kellwood for years specialized in the lower-priced, lower-margin moderate segment of the business. It became an important consolidator in fashion, acquiring 26 businesses from 1985 through 2007 and going head-to-head with larger rivals Jones Apparel Group Inc. and Liz Claiborne Inc. for the department store business.

But the company never seemed to find its footing after the 2001 recession despite buying a slew of businesses, including Hollywould, Vince, Phat Fashions, Briggs New York and Gerber Childrenswear. Through contraction and divestiture, revenues fell from $2.12 billion in 2004 to less than $1 billion after the hostile takeover by Sun, which spun off the profitable American Recreation Products and Gerber Childrenswear units into stand-alone operations.

In an interview with WWD in October, Kramer predicted Kellwood could be turned around in two to three years.

Placing responsibility for many problems on previous management, Andrew Jassin, managing director of the Jassin-O’Rourke Group, said some of the firm’s moves, such as the Phat Fashions acquisition, seemed good, while others, such as taking on licenses to make sportswear for Calvin Klein and Oscar de la Renta, turned out to be “unmitigated disasters” despite the strength of those brands.

“The plans that [former ceo and chairman] Hal Upbin had written had a lot to do with being a core supplier of private label to a lot of retailers and then they rotated into a brand holding company, but didn’t have all the assets in order, all the sourcing, all the design,” Jassin said. “It couldn’t only be bad luck, it had to be bad management.”

Consultant Emanuel Weintraub of Emanuel Weintraub Associates Inc. said the company is paying for strategic errors, specifically buying small businesses and trying to parlay them into juggernauts, like Liz Claiborne’s purchase of Juicy Couture.

“They should have been buying big companies to move the needle,” Weintraub said. “If you make an acquisition of a small company, it has to have such an internal jet propulsion engine. What you’ve got in Kellwood is a lot of businesses that need capital and need management and need a lot of everything.”