A WWD Q&A: THE BASICS OF BARNEYS’ BATTLE WITH ISETAN
Byline: Sidney Rutberg
Why was it filed?
To provide an arena to settle a dispute between Barneys and Isetan, a Japanese retailer and joint venturer with Barneys.
What’s the dispute about?
Isetan put up almost all of the money for the real estate of Barneys’ trophy stores on New York’s Madison Avenue and in Beverly Hills and Chicago and wants to get a return on its money in rentals. Barneys contends that the funds put up by Isetan were actually an equity investment.
What does Chapter 11 do for Barneys?
1. It freezes all debts incurred before the filing and creditors have to wait until a plan of reorganization is completed before they see any of their money.
2. It blocks any lawsuits or foreclosures against the company. Because of this restriction, Isetan sued the Pressman family — owners of Barneys — who are not in Chapter 11, as guarantors, rather than filing a suit against Preen Realty, a Pressman venture that actually received the money from Isetan.
3. It allows for debtor-in-possession financing so Barneys can pay for shipments received after the petition was filed. Since the old liabilities are frozen, Barneys has all its assets to use going forward but none of the old liabilities.
4. Banks do DIP lending because they are first in line for collecting against Barneys assets if the company has to be liquidated. Also, they get big fees.
5. All leases are subject to renegotiation or outright rejection. If a landlord refused to adjust the terms of a lease, Barneys can just walk away from it and pay a maximum of one year’s rent. If the plan to other unsecured creditors is less than 100 cents on the dollar, the landlord’s claim for one-year’s rent can be reduced proportionately.
Will any stores be closed?
Barneys says it has no plans to close any stores, but that could change as the proceeding progresses.
How long does it take to complete a plan of reorganization?
It all depends on how soon the Barneys-Isetan dispute is settled and how long it will take for formulation of a plan that’s acceptable to creditors. Federated Department Stores was able to complete its Chapter 11 in two years, and that was considered quick.
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How much will creditors get paid and when?
No one knows at this point. Barneys says it plans to pay 100 percent, but there will be plenty of opportunities to change that offer.
Can the Pressmans lose control of the business?
Not likely, since they own it, but in a bankruptcy proceeding it is possible for the court to find the Pressmans’ equity has disappeared.