NERVOUS CREDITORS SAID TO BE PUSHING FOR SALE OF SASSCO BY LESLIE FAY
Byline: Diane M. Pagoda and Rich Wilner
NEW YORK — The Jan. 31 deadline for completing a reorganization plan in The Leslie Fay Cos. bankruptcy case is looming, and creditors’ patience has expired.
Reports are circulating that the creditors’ committee is forcing a deal for Sassco Fashions, the maker of Kasper suits, among other brands, and the most profitable unit of Leslie Fay.
At the same time, a long-sought suitor for the entire Leslie Fay company may have quietly surfaced. Leslie Fay officials received a letter this week from a law firm representing “an investor group” that might be interested in buying the company. But the possible suitor is not identified in the letter and sources close to Leslie Fay said its attorneys have not determined the validity of the inquiry.
Separately, sources said the creditors’ committee is working with the Bank of Boston for the sale of Sassco for $226 million — with or without Arthur S. Levine, the chairman of the division. Levine has been trying for roughly a year to buy back the division that he founded and sold to Leslie Fay in 1979.
Levine has been trying to arrange financing on his own, but the creditors have been waiting nearly three years to be paid, and they want the deal done.
“Levine is playing high-stakes poker,” said a source. “He wants to make the best deal possible for himself, and if the $226 million goes through, he will have won. One of the original selling prices was up around $275 million. But I can’t imagine Sassco going on without him involved.”
“For months, Levine has been promising a deal for Sassco would be ready ‘any day now,”‘ said a second source. “No wonder creditors are getting antsy.”
Levine did not return a call for comment Wednesday. Leslie Fay did not comment on the matter. In the past, the company said it comment when the Sassco matter was settled.
Leslie Fay, as part of its Chapter 11 reorganization, will either sell Sassco or spin off the unit for the benefit of creditors. Levine, the sole candidate thus far to purchase the unit, has reportedly had trouble keeping together his financing group.
As recently as October, Levine said he had made a formal bid to buy the division for “in excess of $200 million” with Chase Manhattan Bank NA and its affiliate, Chase Securities, playing “a leading role” in the financing. That deal, however, apparently fell through.
While sources familiar with the situation had, in the past, said it was more likely that Levine and his investor group would end up with Sassco, given the looming deadline and trouble Levine is reportedly having keeping his group together, some speculated Wednesday that the odds now favored a Sassco spinoff.
Under a spinoff, Sassco executives would be given a piece of the company, although creditors would end up with the lion’s share of the equity.
Also, a bankruptcy court hearing Wednesday to approve Leslie Fay’s disclosure statement was postponed until March 4. The delay was caused by “Sassco-related” issues, according to a Leslie Fay attorney.
The attorney, Alan Miller, of Weil, Gotshal & Manges, also said in court that Leslie Fay’s operations have, for three months, been “on or a little better than plan.”
“Things have stabilized and appear to be on the mend,” he added.
Leslie Fay has been operating in bankruptcy since April 1993, when the discovery of an accounting scandal that misstated earnings by $119 million over three years sent it careening into Chapter 11.
Sassco’s Kasper brand is the dominant better suit label in department stores. It is Leslie Fay’s cash cow and posted profits of $30 million on sales of $250 million in 1994, according to court papers.
The division was valued at $210 million to $250 million last year, when another deal to buy Sassco for $250 million was said to be set. It was also led by Levine, with $200 million in bank financing and $50 million to be raised by a public offering that Merrill Lynch would conduct.
Questions have surfaced about whether the reorganized Leslie Fay can survive without Sassco, but its chairman, John Pomerantz, has said he will continue to run the post-bankruptcy company. Whether it actually will be profitable remains to be seen, but it has forecast profits of $3.7 million on sales of $118.2 million in 1996, excluding Sassco.
In November, Leslie Fay posted its first quarterly profit in at least 2 1/2 years, earning $10.8 million on an operating basis, on sales of $140.3 million.