NEW YORK--Esmark Inc., which owns a one-third stake in Danskin Inc., has been hit with an involuntary Chapter 7 petition in Seattle bankruptcy court.
In a statement, Howard D. Cooley, chief executive officer of Danskin, said the filing against Esmark will not have a "material effect" on the day-to-day operations of Danskin.
The petition against Esmark was filed by three creditors: Weinstein Fisher & Reilly, a Seattle law firm, owed $139,000; Grobstein & Co., Sherman Oaks, Calif., owed $58,000, and Abacus Consulting Inc., Bellevue, Wash., owed $12,700.
Esmark, which owns just over 2 million Danskin shares, defaulted on a $14.5 million loan last year from Sun Life Insurance Co. of America. Esmark had pledged the shares as collateral, and Sun Life has been attempting to sell the shares at auction.
Last year, three Esmark units--Esmark Marine Sport, Esmark Competition Ski and Kidder International Inc.--filed liquidating Chapter 7 petitions.
In another development, Danskin, whose operations include Pennaco hosiery as well as Danskin bodywear, reported early this month that its working capital lender has agreed to continue its $3.65 million overadvance facility through August and waive the requirement that Danskin raise new capital.
The overadvance agreement from First Union National Bank of North Carolina had expired March 31.
The overadvance is in addition to Danskin's $6 million term loan. The loan had required Danskin to secure at least $10 million in addition financing from an investor by Dec. 31 or risk default on the loan.
Despite "substantive negotiations" with outside potential investors, Danskin did not get the cash infusion. First Union, however, has waived that requirement.
"Even though First Union has eliminated the requirement of an equity infusion," Cooley said, "the company will continue to explore a full range of potential alternatives to strengthen the company, including capital infusions or stock or asset sales."
Cooley said "significant" cost reductions have been put in place throughout the organization to improve gross margins and reduce expenses.
Danskin reported a loss of $1.3 million in the third quarter ended Dec. 24 against earnings of $101,000, or 2 cents, a year earlier. Sales slumped 11.7 percent in the period to $31.7 million from $33 million.
In the nine months, Danskin lost $4.3 million after a $1.64 million one-time pretax charge primarily to cover the writeoff of bad debt and litigation costs. In the year-ago period, Danskin earned $978,000, or 17 cents a share. Sales declined 4.2 percent to $96 million.
--Fairchild News Service

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