LOS ANGELES — Frederick’s of Hollywood is seeking to get out of Chapter 11 and into the 21st century.
This story first appeared in the August 12, 2002 issue of WWD. Subscribe Today.
The retailer known for its sexy lingerie filed a reorganization plan in U.S. Bankruptcy Court for the Central District of California here late Friday that, if approved, would allow it to exit Chapter 11 by the end of October.
Soon after, investments in retail technology would also make it more efficient as it concurrently expands its store base and upgrades its merchandise mix.
Key points of the plan call for the conversion of “significant” debt to equity for the company’s creditors, led by Credit Agricole, a French investment bank. Credit Agricole will be the largest shareholder after the emergence from Chapter 11.
Two substantial creditors, National Corset and Joseph Lingerie, would become company principals, and the firm’s management would be granted options for up to 14 percent of the company’s shares.
The plan filed with the court doesn’t include an equity stake for Wilshire Partners, the Newport Beach, Calif.-based investment firm that acquired the 55-year-old company on June 16, 2000, less than a month before it filed for bankruptcy protection. Its equity would be “extinguished,” according to Frederick’s attorney Michael Tuchin, with Klee, Tuchin, Boddanoff & Stern.
The plan calls for an unspecified investment for the future growth of the company, including capital for an unspecified number of new stores as well as funds to spiff up Frederick’s merchandise and image.
Specifically, court documents indicate Frederick’s is planning to roll out a point-of-sale system to retail stores, redesign its catalog, and repackage product lines.
“This will convert a substantial portion of creditors’ debt to equity and they will become the owners of the majority of the stock of reorganized Frederick’s,” Tuchin said.
All four of Frederick’s companies are included in the plan: FOH, Inc.; FOH Stores, currently counting 172 units; Hollywood Mail Order LLC, which operates Frederick’s Catalog; and FOH Holdings, Inc.
Linda LoRe, president and chief executive officer, and her senior management team are expected to stay on. LoRe’s base salary will be $450,000 and she will receive a “stay” bonus of $200,000 upon confirmation of the plan. Senior management will take a 10 percent pay cut through the end of 2003 to save the company money.
Frederick’s was forced to seek protection because of a “crushing” debt load of $70 million. According to court documents, the company is on a much better footing these days. Assets are $56 million, including $29 million in trademark assets, $12 million in inventory and $700,000 cash. Liabilities are approximately $28.8 million. Monthly sales in May were $9.2 million compared with $10 million tallied in April.
“What a great thing for the company,” said LoRe, who described the proceedings, and her role in them, as similar to having “three full-time jobs.” She said she was relieved on Friday. “We can finally begin the process of getting out of this.”
Days prior to the filing, rumors surfaced that there might be a fire sale of the company.
Marty Staff, former ceo of Hugo Boss USA, emerged as possible suitor. A spokesman for Staff declined comment on his plans.
However, a source close to Staff said that he has a keen interest in acquiring Frederick’s of Hollywood and financing the acquisition wouldn’t be an issue.
“You have a brand with high recognition that needs to be reinvigorated and that’s precisely what Marty excels at,” said the source.
Staff and LoRe crossed paths before when LoRe, former president and ceo of Giorgio Beverly Hills, was involved in the launches of the scents Hugo Woman, Hugo and Hugo Boss for Men in the late Nineties.
Another source said LoRe and Frederick’s senior management offered to buy the company but that creditors rejected the offer.
LoRe said she and top executives did not plan to buy the company and declined comment as to any other offers on the table. She conceded there have been many.
“Every company is always for sale for anybody who’s the right bidder,” she said. “What we have here is a consensual plan of reorganization that is the least disruptive to the business and makes the most sense because we can get out quickly.”
The likeliest scenario right now, according to sources, is that the debtors and lenders will support the proposed plan. A hearing for the bankruptcy judge to approve court documents has been scheduled for Sept. 4. After that, the plan will be distributed to creditors for a vote.
“We’ll be out of Chapter 11 hopefully just in time for us to focus on the really important selling season,” said LoRe.
Sources said Frederick’s could be ripe for a sale at that time.