Kasper ASL filed a prepackaged reorganization plan on Tuesday — the second time the company has faced Chapter 11 in the past decade — but also its first opportunity to get out from under a $110 million debt load partly incurred through its acquisition of the higher-profile Anne Klein labels.
Under the reorganization plan, the corporate identity would also change from Kasper ASL to Anne Klein Group, as outstanding Kasper stock would be swapped for the newly issued shares of Anne Klein. ASL refers to former chairman Arthur S. Levine, the company founder who left the business shortly after Idol’s appointment and then formed a partnership with Elie Tahari to replicate his blockbuster better suit business as a competitor under the Arthur S. Levine for Tahari label, as reported.
Under the plan presented to U.S. Bankruptcy Court in Manhattan, Kasper’s debts would be converted into equity in the reorganized company, which has also secured a $35 million debtor-in-possession financing facility from its existing bank group, led by JP Morgan Chase.
Idol, who was brought on board as chairman and chief executive officer from Donna Karan International last year specifically to address Kasper’s liquidity, said the bankruptcy filing was a necessary step toward the goal of returning the company to profitability by next year. With the DIP facility in place, Idol plans to continue as “business as usual,” he said, noting that measures designed to develop its Anne Klein sportswear business — its new ad campaign featuring Bridget Hall, its fall fashion show on Monday at Mercedes-Benz Fashion Week and its flagship opening in SoHo next Wednesday — would proceed as planned.
Ironically, the value of Levine’s Kasper ASL helped the Leslie Fay Co. emerge from bankruptcy protection in 1997 by spinning the suit division off as a publicly traded venture. But it was saddled with debt incurred from its former parent company.
Then substantial losses at Kasper, hit by both a decline in career dressing and the difficult integration of the Anne Klein labels over the past two years, led the company to default on its semiannual 13 percent interest payments to its lenders that totaled $20 million a year, Idol said.
“There hasn’t been any secret to the fact that the company knew it had to deal with its senior note debts,” Idol said. “It was a heavy burden on the company financially.
“This company has struggled for the past two years, partly because of the debt load, partly because the company had operating difficulties that were caused by not really understanding the long-term ramifications of some of the business plans that were in place. That happens to quite a few apparel companies. They think that’s the right way to build a business, but two or three years into it, they realize they have burned through a lot of money.”
While Kasper’s bankruptcy filing is its most decisive step toward restructuring the company to date, Idol has made a number of other moves aimed at improving its operations, putting its manufacturers in control of unit purchasing and an overall workforce reduction of about 300 employees over the past six months, Idol said, giving the firm an immediate savings of about $15 million.
“We will have better control over our inventory and manufacturing, we will have a reduced operating cost structure and reduced debt and interest payments,” Idol said. “That will help us grow in the future.”
David A. Strumwasser, managing director of Whippoorwill Associates, the largest holder of voting rights of Kasper’s securities, said in a statement that the ad hoc committee of bondholders supports the steps led by Idol toward addressing the company’s key operating issues.
“We are confident that the plan of reorganization represents the best opportunity for the bondholders and other creditors to realize value from their stake in the company,” Strumwasser said.
According to the Chapter 11 petition, Kasper’s total assets as of Sept. 29 were listed as $308.8 million, with total liabilities pegged at $255.2 million. Its listed debt securities include $110 million of 13 percent senior notes due in 2004, $28.9 million in interest on the 13 percent notes and $99.5 million in the form of a Chase Credit Agreement. The figures for the senior notes and related interest, which are held by more than 700 holders, was based on the distribution of notes to creditors of the Leslie Fay Cos. under Leslie Fay’s confirmed Chapter 11 plan in 1997, according to court records. The Chase agreement includes nine holders of record.
Companies holding more than 5 percent of the voting rights of Kasper’s securities, as of March 20, included Whippoorwill Assoc. Inc. at 17.8 percent; Bay Harbour Management Inc., 15 percent; ING Equity Partners, 9.5 percent, and Harvard Management Co., 5.3 percent. Whippoorwill and Bay Harbour, both so-called vulture funds that invest in distressed companies, were the two companies that helped bail Barneys New York out from its bankruptcy in 1999. The two still retain their interests in the upscale retailer.
Among the top creditors holding the largest unsecured claims are Whippoorwill Associates for $21 million; The Dreyfus Corp. for $19.3 million; Putnam Investments for $11.2 million; Bay Harbour for $11.1 million; Prudential Investments for $7.2 million, and UBS Warburg for $7.1 million. Among its trade creditors listed in the filing was Herbert Kasper of Katonah, N.Y., the designer who licensed his name to the suit manufacturer, for $43,860.
According to the latest filing with the Securities and Exchange Commission in November, the company posted a $25.3 million loss, or $3.72 a share, for the third quarter ended Sept. 29 compared with a $5.3 million loss, or 78 cents, in the same year-ago period. Sales for the 13 weeks dropped nearly 16.5 percent to $102.9 million from $122.9 million.
The SEC filing noted that as of Sept. 29, Kasper had direct borrowings under the Chase credit facility of $79.7 million, along with $19.4 million outstanding in letters of credit. About $22.8 million was still available for future borrowings at that time.
The firm, according to financial projections, estimated that after exiting from Chapter 11 it will end 2002 with $4.8 million in income after restructuring costs on revenues of $377.2 million, which includes $16 million in royalty income. For 2003, the projection has income at $14.6 million on revenues of $446.5 million, which includes $19.5 million in royalty income. Income in 2004 is projected at $23.5 million on revenues of $524.5 million, which includes royalty income of $24.3 million.