NEW YORK — The London Fog Group on Monday filed a voluntary Chapter 11 bankruptcy court petition, seeking to restructure its businesses.
The company received a $40 million debtor-in-possession financing facility from Wachovia Bank. The financing is subject to court approval. The filing was in a Reno bankruptcy court. The company said the filing was necessary because it was unable to secure sufficient financing for day-to-day operations.
This is the second bankruptcy filing for the 84-year-old firm. The rainwear and outerwear manufacturer filed a voluntary petition for Chapter 11 bankruptcy court protection on Sept. 27, 1999, in Delaware. In April of 2001, the company emerged from bankruptcy.
T.K. Flatley, managing director of investment banking firm Avalon Group, said London Fog will keep its London Fog and Homestead textiles businesses, which it will restructure through the bankruptcy process. Flatley said, “We were hired well before the bankruptcy to sell [outerwear brand] Pacific Trail, and sold it to Perry Ellis International when we found out London Fog needed to go through the bankruptcy process.”
The companies have an agreement in which Perry Ellis will become the “stalking horse” in a bankruptcy court auction to buy Pacific Trail for $14.5 million. The deal is subject to better offers.
Flatley said the plan is to have an auction within 10 days, subject to court approval. Avalon has asked for an expedited hearing. He said 65 or so companies were initially contacted to considering buying the sportswear/outerwear firm. About half had entered into confidentiality agreements.
An institutional investor observed, “This is probably a good purchase. Perry Ellis has always made great calls on acquisitions, but the question here is, can they grow the business?”
London Fog said Pacific Trail has built a national reach of more than 10,000 stores.
David Greenstein, chief executive officer of the London Fog Group, said in a statement, “We have forged three very attractive businesses targeting distinct markets, yet we find ourselves without sufficient capital to fund the full group’s expected growth. London Fog Group has determined to divest our Pacific Trail business as it represents a very strong group of nationally recognized, successful brands with excellent prospects for growth.”
In December 2004, London Fog Industries Inc. changed direction. It folded Homestead Fabrics with its outerwear businesses. At the time, London Fog denied it had been sold, but investment bankers said then that it was acquired by Homestead, a bondholder of London Fog.
Homestead, which was a subsidiary of Manchester, England-based Broome & Wellington, is the home-textile business run by David Greenstein.
During his tenure at Homestead, where he was president, Greenstein took the company from a start-up to a $100 million business in six years, primarily through sales of acquired private label home products. One of those acquisitions was the Guilford Home Fashions division, which Guilford Mills sold in 2002. Although Homestead still uses the Guilford brands and licenses of the division, its manufacturing and distribution operations were shut down following the purchase.
Separately on Tuesday, Perry Ellis reported that even though fourth-quarter profits fell 1.4 percent, the results beat analysts’ estimates by a penny. In the three months ended Jan. 31, the company earned $8.1 million, or 81 cents a diluted share, compared with $8.2 million, or 83 cents, last year. Fourth-quarter net revenues rose 24.3 percent to $213.9 million from $172.1million last year.
For the fiscal year, Perry Ellis had earnings of $22.7 million, or $2.26, up 8.2 percent from $21 million, or $2.15, last year. Annual revenues were up 29.4 percent at $849.4 million.