By  on February 7, 1994

NEW YORK -- A consulting firm that specializes in helping financially troubled retailers has fallen victim to its own financial difficulties.

M.L. Rothschild & Co. of Chicago, which helps operate and supplies credit for about 50 small retailers, filed a Chapter 11 petition Friday and said it was getting out of the business of supporting other retailers' credit.

Rothschild generally takes over the merchandising of ailing retailers and uses its credit standing to purchase fresh merchandise for the stores. It also serves as a liquidator for retailers that cannot be rehabilitated.

The Rothschild petition lists total liabilities of $44.7 million and assets of $52.5 million.

Rothschild, run by the Permut family, suffered a severe liquidity crisis over the past month as a result of the December Chapter 11 filing of the former Hartmarx retail operations, known as HSSI. Rothschild says HSSI owes it over $19 million.

Hartmarx sold HSSI to the Permuts in September 1992 for a $35 million note, but kept the operation's capital stock as collateral. In November, Hartmarx seized the shares and the Permuts sued to void the seizure. The Permuts have asked the Chicago bankruptcy court to dismiss the HSSI Chapter 11 case.

Rothschild said it was forced to file under Chapter 11 because HSSI refused to pay it the more than $19 million owed for inventory purchased by HSSI through Rothschild.

Rothschild said it has provided over $100 million in credit support to HSSI since the former Hartmarx chain was acquired by the Permut family in September 1992.

Because of the HSSI Chapter 11, Rothschild said its "cash flow and credit standing in the industry" have been severely damaged and it is "impossible for the company, although solvent, to meet its current obligations, which largely are for goods delivered to HSSI."

Rothschild said it has lined up a debtor-in-possession financing from LaSalle National Bank to allow the company to continue to support the credit for its retail clients.

Rothschild said the financing will "enable it to continue to obtain merchandise for its own stores and to service its credit support clients on an interim basis."

Barton Nachamie, Rothschild's attorney, said the total amount of the financing package is still under negotiation, but LaSalle has agreed to provide an emergency $3 million loan.A hearing on the interim financing is set for Wednesday in Chicago before Bankruptcy Judge Ronald Barliant. Nachamie said an organizational meeting to form an unsecured creditors meeting is scheduled for that afternoon at the U.S. Trustee's office.

In its efforts to sell the credit-support business, Nachamie said, Rothschild is in "serious negotiations" with several potential buyers.

Rothschild has been operating with restricted trade credit for the past month, and, as a result, many of the retailers buying under the Rothschild name have suffered.

One of the many retailers stung by Rothschild's ills has been Master's Inc., a 35-unit family apparel chain with volume of $50 million, which emerged from Chapter 11 in December 1992. Rothschild has been providing Master's with credit since it came out of bankruptcy, but Jerome Zelin, executive vice president, said the chain cannot wait any longer for Rothschild to resolve its problems.

"We're currently in the process of affirming arrangements for alternative sources of financing," Zelin said.

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