AT LAST, LESLIE FAY’S REORGANIZATION PLAN: 2 FIRMS, STOCK PAYOFF

Byline: Sidney Rutberg

NEW YORK — The long-awaited disclosure statement of The Leslie Fay Cos., filed Monday, divides Leslie Fay into two separate companies, New Sassco and a reorganized Leslie Fay, and creditors are being paid off with stock in the two companies plus Sassco notes.
The plan provides that $74 million in unsecured creditors will be paid an estimated 75.7 percent on the dollar in stock of a reorganized Leslie Fay company along with shares and notes of New Sassco.
Bank claims of about $178 million will receive 80 percent in stock and New Sassco notes.
The filing comes some 3 1/2 years after Leslie Fay petitioned for Chapter 11 reorganization, going into bankruptcy court after disclosure of a massive accounting fraud.
In all, the plan, covering some 300 pages, provides for the payment of about $330 million in claims for securities having an estimated value of $260 million. Creditors will receive 6.8 million New Sassco common shares, $110 million in New Sassco notes and 3.4 million shares in the reorganized Leslie Fay. The Sassco notes will mature in seven years and pay interest at 12 3/4 percent.
John J. Pomerantz will continue as chairman and chief executive officer of the reorganized Leslie Fay. The company will continue Pomerantz’s health insurance for life as long as the cost does not exceed $20,000 a year. He will release the company from any claims for unpaid salary under his current contract. Pomerantz’s salary going forward is not disclosed.
The value of the Sassco shares being distributed is estimated in a range of $15.44 to $21.32 a share. The Leslie Fay stock being distributed is valued in the range of $5.88 to $8.82 a share. The estimated payoff represents the mid-range of these valuations.
Projections in the disclosure statement put sales of the reorganized and slimmed-down Leslie Fay at $123.7 million in 1997 compared with $432.8 million in 1996. Net income will drop to $1.6 million from $3.5 million in 1996. By the year 2001, sales are projected at $144.9 million and earnings $1.8 million.
New Sassco, which is estimated to earn an estimated $21.2 million on sales of $312.9 million in 1996, will earn only $1.9 million in 1998, largely because interest costs will shoot up to $19.6 million from $1.1 million in l996. Over the next four years, net income will rise to $13.9 million and sales increase to $373.6 million, according to the projection.
The New Sassco will be highly leveraged, the statement points out, with debt of $147 million and shareholders equity of $100 million.
Arthur S. Levine, head of Sassco, will receive an employment contract with base pay of $2 million a year. Sassco management will also receive options to purchase 22.5 percent of Sassco stock.
Sassco’s board will have seven members with five being designated by the creditors committee. The other two will be Levine and a Levine designee. Levine will also have the right to designate one observer to the board. If the size of the board is increased, he will have the right to appoint at least 28 percent of the membership.
The reorganized Leslie Fay will also have seven board members with five creditors’ committee appointees while Pomerantz and a Pomerantz appointee will fill the other two seats.
Assuming the estimated values in the plan are realistic, the plan will bring creditors a much better return than the proceeds of a liquidation. The disclosure statement estimates that liquidation would bring a total of $183 million or about 25.3 cents on the dollar for creditors.
Hearing on confirmation of the plan is set for Thursday at 10 a.m. before Judge Tina Brozman.
Leslie Fay filed its Chapter 11 on April 5, 1993; word of the accounting emerged two months before that. Just late last month, a federal grand jury in Scranton, Pa., indicted Paul. F. Polishan, the firm’s former chief financial officer, on charges of “directing and authorizing a $131 million final fraud relating to the [company’s] purported earnings.”
At the time the indictment was revealed, David M. Barasch, U.S. Attorney for the Middle District of Pennsylvania, said the criminal probe into the scandal “was still open, awaiting further investigation.”
Polishan’s attorney, Michael Berger, as reported, said his client is “completely innocent of any wrongdoing.” Polishan is the second Leslie Fay executive to be indicted in the scandal. In October 1994, Donald F. Kenia, former corporate controller, pleaded guilty to two counts of making false statements to the Securities and Exchange Commission. Kenia, who has been cooperating with authorities, has yet to be sentenced.

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