By and  on October 29, 2010

Loehmann’s Inc. is running out of options.

The Melville, N.Y.-based off-price chain has defaulted on its credit agreement and is exploring reorganization options, including a possible bankruptcy or prenegotiated restructuring.

The discounter said Friday it was unable to complete a swap of old notes due next year for new ones due in 2014, falling shy of the 97 percent of required votes by 4.6 percent. Without completing the swap, the off-pricer was unable to make its October interest payment to bondholders, as it had planned to do today.

Loehmann’s last month was able to get a 30-day extension on its October interest payment in order to execute the swap. Istithmar, the investment arm of Dubai World, which owns Loehmann’s and Barneys New York, was expected to provide additional funding for the beleaguered retailer had the transaction been completed.

Loehmann’s said Friday it was in discussions with certain bondholders and Crystal Financial LLC, its revolving credit lender, regarding its options. “While this dialogue has been generally constructive to date, there can be no assurance that these negotiations will be successful,” the company said.

Jerald Politzer, chairman and chief executive officer of Loehmann’s, could not be reached for comment Friday.

Earlier last month, the retailer said it had the approval of a requisite number of bondholders to close up to 15 stores over the next year. It currently operates 60 stores in 16 states.

A credit analyst, who requested anonymity, said those stores are likely to become part of a group of store closures in a bankruptcy filing. He said when Loehmann’s received 50 percent of the bondholder votes last month, Crystal provided an additional loan of up to $10 million on top of its $35 million agreement, as part of the lending agreement’s accordion feature.

He confirmed that, facing resistance from factors, the store recently had problems getting merchandise.

Standard & Poor’s has long questioned Loehmann’s prospects, on occasion downgrading the retailer based on weak liquidity, declines in comparable-store sales and the possibility of default.

Financial sources told WWD that Syms Corp. six months ago eyed a play for Loehmann’s, hoping to get it at a distressed price. Syms last year rescued Filene’s Basement from bankruptcy. Executives at Syms could not be reached for comment.

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