Loehmann’s Capital Corp. Monday filed a voluntary prepackaged Chapter 11 petition in Manhattan bankruptcy court.

This story first appeared in the November 16, 2010 issue of WWD. Subscribe Today.

Whippoorwill Associates Inc. and Istithmar World have agreed to invest $25 million into the firm upon its emergence from bankruptcy, expected in the first quarter of 2011. Whippoorwill owns 70 percent of the senior notes and Istithmar is the equity sponsor.

The two also agreed to a restructuring plan in which the retailer’s debt will be reduced and its balance sheet recapitalized. According to court documents, the new capital structure will allow Loehmann’s to reduce debt by $115 million. The prepackaged filing also will preserve 1,900 jobs and the Loehmann’s brand.

A reorganization of some kind has been considered a foregone conclusion since Oct. 29, when the company failed to complete a debt swap and defaulted on its credit agreement.

Crystal Financial, Loehmann’s lender, is providing a $45 million debtor-in-possession credit facility. Loehmann’s said it will have “sufficient liquidity and the financial flexibility to fund daily operations.”

The petition filed with the court estimated the number of creditors at between 1,000 and 5,000, with both assets and liabilities each estimated at between $100 million and $500 million.

The five largest unsecured claims were listed as the ladies’ division of G-III, New York, $774,498; Tahari Ltd., Pittsburgh, $580,939; Urban Outfitters, New York, $569,438; Juicy Couture, Newark, $519,131, and Republic Clothing Corp., New York, $509,240.

Joseph Melvin, Loehmann’s chief operating officer, chief financial officer and secretary, said in an affidavit that net sales fell $30.4 million, or 6.7 percent, to $422.2 million in fiscal year 2009 from $452.5 million in fiscal year 2008. For the quarter ended July 31, the operating loss widened to $12 million from $3.8 million in the prior-year period, with sales down to $91.4 million from $101.5 million.

The company projected comparable-store sales to fall 6.9 percent for fall 2010, increase 4.5 percent for fiscal year 2011 and gain 3.5 percent for each of the fiscal years 2012 and 2013.

Melvin described Loehmann’s core customer as an affluent woman aged 30 to 55 with household income in excess of $100,000. “Loehmann’s has approximately 200,000 ‘best customers,’ many of whom have been Loehmann’s customers for over 10 years, who average approximately $1,000 in annual purchases, purchase goods an average of approximately 12 times a year and represent approximately 45 percent of the debtors’ annual net sales,” he said.

Loehmann’s filed a voluntary Chapter 11 petition in Delaware in May 1999. It emerged from bankruptcy in October 2000 and was acquired in July 2006 by Istithmar Retail Investments for $300 million. Istithmar at that time provided a $55 million standby letter of credit, which expires Sept. 31, 2012. Loehmann’s drew down $42 million in 2007 and $5 million in 2008. The balance of $8 million was drawn down on April 19.

Loehmann’s, whose leased stores average 26,000 square feet, was current with its monthly lease payments, totaling $3.5 million, through Oct. 31.

The company was founded by Frieda Loehmann, a former department store buyer, in 1921 in Brooklyn, N.Y. Previous owners include May Department Stores Co.

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