FOR BARNEYS SUPPLIERS, SHOCK IS GIVING WAY TO ANGER OVER TERMS
Byline: Rich Wilner — with contributions from Jeff Siegel
NEW YORK — The Barneys Chapter 11 is getting uglier.
Last week, vendors were stunned by the bankruptcy filing. Now, shock has given way to resentment over what is claimed to be an inadequate payout plan and a lack of information from the retailer.
Its suppliers were saying Friday that instead of waiting a long time for a potential 100 percent payout, they’d rather cash in their claims now with so-called “vulture” funds.
Meanwhile, the dispute between the retailer and Isetan of America over the makeup of their partnership — the matter that led to Barneys’ Chapter 11 filing — spilled from the boardroom into the courtroom.
Barneys filed suit against Isetan on Thursday in an attempt to recoup $50 million it says Isetan “unfairly” withdrew from the company. Isetan sued Barneys on Friday to recover $168 million in what it says is a defaulted loan. Each side managed to impugn the other’s integrity.
Bankruptcy attorneys representing vendors to Barneys New York warned the retailer that the proposed reorganization plan, which offers a 100 percent payout — not in cash but in Barneys notes — would never fly.
Meanwhile, analysts at several vulture funds, which invest in the claims and notes of distressed companies, estimated the Chapter 11 case could last for at least two years.
For vendors, the hopefulness brought by Barneys’ first promise, of a 100-cents-on-the-dollar settlement with the trade, quickly faded Friday as word of the proposed payout in Barneys paper spread.
John Campo, counsel to Barneys, did not return phone calls seeking comment on the terms of the proposed notes, which were described in court papers only as Barneys series B notes.
In statements and interviews Thursday — the day after the Chapter 11 filing — officials at Barneys pledged to pay creditors 100 cents on the dollar but made no mention that the payment would be in the form of notes — a form of payment less desirable than cash.
“That plan will never fly,” said the attorney for some creditors Friday. “I think Barneys may have underestimated the strength of the reaction of the industry to their filing.”
“They [Barneys] are using the courts and taking out on the trade what is basically a fight between business partners,” he said.
“The plan is meaningless,” said a second creditors’ attorney. “Barneys offer doesn’t sound like much. My clients, Barneys’ vendors, are looking for answers, and Barneys is not supplying them.”
Barneys’ problems do not end with its vendors. Its nearly year-long dispute with Isetan also grew nastier as each side filed lawsuits.
Isetan of America, Barneys’ landlord and business partner, is fighting with the fashion chain over the nature of the $587 million it has invested in the company since 1989.
Isetan of America, the U.S. arm of Isetan Co. Ltd., the large Tokyo-based department store organization, claims in papers filed in New York State court here, that its investment was not an equity stake in Barneys, but real estate purchases and loans to a Barneys affiliate.
The suit, filed against Robert L. and Eugene Pressman, Barneys’ owners and the grandsons of founder Barney Pressman, claim Preen Realty Inc., a Barneys affiliate, defaulted on $168 million of $177 million in short-term emergency loans. The Pressmans personally guaranteed the loans, Isetan said.
Isetan said the loans were made primarily to cover cost overruns in connection with the construction of the Barneys stores in New York, Beverly Hills and Chicago.
At the same time, Barneys, in a suit filed in bankruptcy court here, claims the $177 million from Isetan was really an equity investment in Barneys stores here and in Beverly Hills.
Barneys said in court papers that it and Isetan structured the equity investment as a loan to more easily gain the approval of Isetan’s banks.
In the complaint, Barneys claims the monthly rent payments to Isetan, which total about $50 million over two years for the Madison Avenue store in Manhattan, the new unit in Beverly Hills and a store in Chicago, were preferred dividends on the equity investments and unfairly removed from the company.
Said Yasuo Okamoto of Hughes, Hubbard & Reed, counsel to Isetan of America, in a telephone interview Friday, “The Barneys complaint is quite a story. I haven’t reviewed it in detail, but the feeling with Isetan is that it doesn’t seem to be something we should be that concerned about.”
The original argument between Barneys and Isetan stemmed from Barneys’ request of Isetan last March to transfer ownership of the real estate of the three U.S. flagships to Barneys America in exchange for an equity stake in Barneys.
In its proposed plan of reorganization, Barneys is offering Isetan a 27.9 percent equity interest as part of a “recharacterization” proceeding.
The proceeding “will reflect the actual nature of the relationship between Barneys and Isetan” and result in Barneys’ asset restructuring, the valuation of the Madison Avenue, Beverly Hills and Chicago real estate to reflect the true market value of the properties and the recapitalization of Barneys to reflect Isetan’s equity interest, according to court papers.
Analysts at vulture funds said Friday there was a lot of interest from Barneys’ creditors in selling their claims. While a market for the claims would not be established until today, when more financial information on Barneys would become available, the analysts are predicting they will be paying 60 to 70 cents on the dollar for the claims.
“This is going to be a long, protracted Chapter 11, with the litigation between Barneys and Isetan taking up much of the time before Barneys can even turn its attention to its operation,” said one analyst at Credit Research & Trading, Greenwich, Conn.
Another analyst at M. J. Whitman, a firm specializing in investment in distressed companies, said each of the top 25 unsecured creditors, representing roughly $250 million in claims, expressed interest in selling their claims. — Fairchild News Service