DISPUTE THREATENS W&L REORGANIZATION

Byline: Jeff Siegel

NEW YORK--Woodward & Lothrop Inc.'s reorganization efforts could be "derailed" if a dispute between its majority owner and its unsecured creditors is not resolved, the retailer warned Wednesday.
The conflict between Taubman Investment Co. LP and W&L's unsecured creditors revolves around $262 million in cash Taubman pumped into the retailer shortly before W&L filed Chapter 11 in January.
Taubman contends the cash infusion in the Washington, D.C.-based department store chain is debt-related and should be viewed as a general unsecured claim.
Unsecured creditors, however, say Taubman's claim is an equity investment and therefore subordinate to unsecured claims.
Equity investors, such as shareholders, usually receive much lower payouts, if any, under a Chapter 11 reorganization.
So far, the two sides have been unable to reach a compromise, and the unsecured group is threatening to file suit against Taubman, a move that W&L said could cripple its reorganization.
In court papers, W&L said: "Failure to resolve Taubman's claims would pose a significant risk of derailing any proposed plan of reorganization."
Matthew Feldman of Willkie, Farr & Gallagher, counsel to W&L, said the dispute could put "at risk" W&L's target for emerging from Chapter 11 in the first quarter of 1995.
As a holder of "large disputed claims, Taubman could delay confirmation of a plan until the claims are resolved," W&L noted in court documents. What's more, W&L said it would be "extremely difficult" to propose and negotiate a confirmable plan without knowing if Taubman's claims would be treated as debt or equity.
W&L, noting that litigation between Taubman and its creditors would be "extremely costly," said resolving the issue through compromise is "the only means available to assure the debtors' swift emergence from Chapter 11."
Michael Guss, of Jones, Day, Reavis & Pogue, counsel to W&L's unsecured creditors, said he had not set a deadline for resolving the issue with Taubman, adding, "Negotiations are ongoing."
At a bankruptcy court hearing Wednesday, W&L was granted a 66-day extension, to Jan. 9, of its exclusivity period to monitor sales and earnings trends through the Christmas season.
There were no objections to the extension.
"Monitoring Christmas selling will be especially important," W&L explained, "in light of the weak sales environment that has impacted the retail department store industry in August and September."
The company said it wanted to continue to negotiate with its various parties on formulating a reorganization plan.
--Fairchild News Service

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