Betsey Johnson’s credit headache could prove to be Steve Madden’s designer brand opportunity.

In papers filed with the Securities and Exchange Commission late Thursday, Steven Madden Ltd. said it had taken over a $48.8 million loan to Johnson’s firm, Betsey Johnson LLC, that is currently in default. If Johnson can’t repay the loan by Aug. 20, 2012, Madden would end up owning the brand — and could even seize the personal assets of Johnson and her chief executive officer, Chantal Bacon.

This story first appeared in the September 3, 2010 issue of WWD. Subscribe Today.

The financial blow to Johnson, 68, comes only 10 days before the flamboyant, cartwheel-turning designer is set to unveil her spring collection during New York Fashion Week.

In 2007, Johnson and Bacon sold a controlling interest in her company to Castanea Partners, a Boston-based private equity firm that has also taken stakes in a number of beauty companies. Robert Smith, former vice chairman of Neiman Marcus Group, is among the firm’s managing partners. At the time, the company was estimated to have aggregate retail volume of more than $200 million through its own stores and its retail accounts. A current estimate wasn’t available.

There are 66 Betsey Johnson boutiques and plans call for the chain to expand to 100 stores by 2012, according to the designer’s Web site.

Madden already holds a license for handbags, small leather goods, belts and umbrellas under the Betsey Johnson and Betseyville trademarks. The collateral for the loan includes the company’s intellectual property, so Madden could be in line for the labels it holds as licensee. Also included among the items securing the loan are “the borrower’s personal property, accounts, deposit accounts and cash, equipment, fixtures, general intangibles, goods [and] inventory.”

Madden spent about $27.6 million to buy out a syndicate of lenders who initiated the loan in August 2007. The final quarterly installment is due on Aug. 20, 2012. The loan was purchased through a new wholly owned subsidiary formed specifically for that purpose.

The terms of the loan require not only the quarterly installment payments, according to the SEC form, but also “compliance with certain affirmative and negative covenants.”

Madden said in the filing that it had begun discussions with the borrower about resolution of the debt.

A spokesman at Steven Madden declined to comment on the transaction and calls to Betsey Johnson LLC and Bacon weren’t returned.

Johnson has built a considerable licensee group that grew with the addition of Inter Parfums Inc. in July.

The loan syndicate included 72 Domestic Credit LP, 72 Offshore Credit Ltd. and Babson Capital Australia PTY Ltd. Paradox Syndication LLC, administrative agent for the financing, has been removed, with the new Madden subsidiary assuming those obligations.

The takeover of the loan follows a series of expansion moves by the Long Island City, N.Y.-based firm best known for its trendy footwear. With its move into more accessories categories, the firm acquired handbag maker Big Buddha for about $11 million in cash, plus certain earn-out provisions, in February. More recently, its footwear was included in the Material Girl collection launched last month at Macy’s.

Less conventionally, the company last month made a $5 million debt and equity investment in one of its larger accounts, Bakers Footwear Group Inc., which could wind up giving it a nearly one-fifth stake in the retailer. Bakers will use the net proceeds of $4.6 million for working capital and received 11 percent interest, with paydown of principal occurring between 2017 and 2020. The company will also receive 1.8 million shares of common stock, lifting its stake to 19.99 percent.

Madden has enjoyed strong financial performance after something of a rise-and-fall childhood. Net income in its second quarter, ended June 30, grew 63 percent to $19.8 million while net sales were up 36 percent to $158.7 million. Shares of the company ended Thursday’s trading session at $36.27, up 1.2 percent for the day, but effectively up 71.2 percent from their price of one year ago when adjusted for a 3-for-2 stock split on May 3.

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