LONDON FOG FILES CH. 11 TO EXIT RETAIL BUSINESS
Byline: Arthur Friedman
NEW YORK — Looking to shed the bulk of its retail operations and focus more on its wholesale businesses, London Fog Industries filed a Chapter 11 reorganization petition Monday in U.S. Bankruptcy Court in Wilmington, Del.
William Dragon, chairman and chief executive officer, said that after other strategies were considered, the Chapter 11 route was the best way to exit the retail business, except for some 25 outlet stores he plans to keep for liquidating excess inventory.
Dragon said there are about 140 outlet stores right now, five 25,000-square-foot superstores and two Weather stores. Dragon said the superstores and two Weather stores, in Union Station in Washington, D.C., and in the Pittsburgh airport, “are gone, they’re history.”
“London Fog Industries’ previous strategy was to compete in the direct retail sector. Substantial resources of time, talent and money were expended on this retail strategy for the past four years,” Dragon said. “Since I assumed the role as ceo in March, we have reassessed this initiative and have concluded that we should not be competing directly with our retail partners.”
Dragon said the company has secured a $130 million financing commitment from Congress Financial Corp. to address its liquidity needs in Chapter 11, and also has made significant progress in negotiating a debt for equity exchange with its senior bondholders.
“The bondholders have expressed support for our action and support for a restructuring plan, which, among other things, contemplates the conversion of a substantial amount of bondholder debt to equity,” Dragon said. “With their support, we expect to continue our efforts to market and distribute our quality rainwear and outerwear, on an uninterrupted basis, and to emerge from the reorganization proceedings in early 2000 with a substantially strengthened balance sheet.”
Dragon said the firm’s retail partners, which include most of the top department store chains, “have expressed their support of our plan to reemphasize our position as a leading outerwear vendor.”
He said the plan should help LFI reduce its high debt level, which the filing said was in excess of $100 million. Dragon said the debt was closer to the $225 million it reported in a Securities and Exchange Commission filing about a year ago.
London Fog Industries is the parent company of the London Fog, Pacific Trail, Black Dot and Towne proprietary labels, as well as licensed outerwear lines for Dockers and Levi’s. The bankruptcy includes the Pacific Trail business, which is a wholly owned subsidiary.
Established in 1922, LFI is headquartered in Eldersburg, Md., with corporate offices in Seattle and New York. The company employs about 1,500 workers, and Dragon said there will be layoffs related to the store closings.
The company estimated that it has at least 200 creditors. Included in claims of London Fog’s top 20 unsecured creditors is $100 million in senior subordinated notes for which IBJ Whitehall Bank & Trust Co. in New York is the trustee.
Other top creditors are DDJ Capital Management, Wellesley, Mass., $29 million; Contrarian Capital Fund, Greenwich, Conn., $22 million; Foothill Capital Corp., $21.7 million; Van Kampen American Capital PRIT, $13.5 million; Morgens Waterfall Domestic Partners, N.Y., $12.1 million; American Tourister, $798,981; Toth Design & Advertising, $89,895; Sher Plastics Co. Inc., $31,522; Encore Textiles Inc., Monroe, N.C., $29,305, and Monarch Marking Systems, Dayton, Ohio, $25,436.
In April 1995, London Fog underwent what has been a long history of restructuring, stretching out loan payments and turning over 80 percent of the company to its lenders. London Fog was struggling under a heavy debt load stemming from a 1988 leveraged buyout.
Dragon emphasized that the filing will allow the company to invest more in product development and marketing of the wholesale brands. He noted that in a November 1997 Fairchild 100 consumer survey, London Fog was the sixth most recognizable fashion brand, up from 17th place two years earlier, and was the second-most-recognized apparel brand in the survey, behind Levi’s, for which it now has an outerwear license.
At its peak, in the late Eighties, London Fog had sales of about $350 million. Volume had declined to $200 million by 1994 under reduced margins. On Monday, the company said annual sales were about $300 million, split fairly evenly between women’s and men’s.
In a special filing with the Securities and Exchange Commission required when it retired some public debt, LFI earned $155.8 million, boosted by a special gain of $160.9 million from the extinguishment of debt, for the year ending Feb. 28, 1998. Sales rose 20.2 percent to $335.6 million from $279.1 million.
In women’s, rainwear sales fell to $41.1 million in 1997 from $84.6 million, while outerwear sales vaulted to $88.4 million from $53.1 million. The outerwear gains primarily reflect sales of Pacific Trail, which have grown since its acquisition in April 1994.