BARNEYS GETS $28M DIP FINANCING DESPITE OBJECTIONS BY ISETAN
Byline: Jeff Siegel — with contributions from Sara Gay Forden
NEW YORK — Barneys finally got $28 million in interim debtor-in-possession financing from bankruptcy court Wednesday, trumping its Japanese partner, Isetan Co. Ltd.
The bitter conflict between the Pressmans and Isetan is expected to grow even more intense in the coming months, as the court’s approval loosened Isetan’s grip on the real estate of the three Barneys buildings it owns and spent $353 million to construct.
The DIP financing gives Barneys’ lender, Chemical Bank, first crack at the three buildings — Madison Avenue, Chicago and Beverly Hills — should the retailer go belly up and was approved over strenuous objections by Isetan attorneys.
The money should jump-start the flow of millions of dollars in spring goods that been stalled on vendors’ loading docks for a week while Barneys sought to secure financing.
On Wednesday, there was no testimony from Barneys. The testimony came from Chemical and The Blackstone Group, financial advisers to Barneys.
On Tuesday, Irvin Rosenthal, senior vice president and chief financial officer, testified that no domestic shipments and hardly any imports had been received by the chain since the Chapter 11 was announced Jan. 11. He said that Barneys was down to less than $1 million cash on hand and couldn’t secure other financing to get the crucial spring merchandise into the stores.
The $28 million will be used to pay for inventory and for payroll, Barneys said.
Bankruptcy Judge James Garrity ordered all parties back to court on Jan. 23 and said that in light of the disagreement between Chemical and Isetan, Barneys’ creditors, including insurance companies and Isetan, should look for a more favorable DIP deal, if they could find it.
The financing hearing was continued Wednesday, when Isetan and Chemical could not agree on which side would get first crack at Barneys’ valuable real estate should the chain collapse.
Isetan, which had a first claim on its security should Barneys not survive, did not want to agree to the interim DIP deal, originally set at $20 million, because under the deal, Chemical gained a super priority lien, meaning first dibs on the real estate.
But Isetan also objected to the financial covenants in the DIP deal, saying they were too high and could not be met.
Isetan asked Judge Garrity why it should agree to the DIP deal if it would only weaken its position. The Blackstone Group testified that it interviewed a second lender, Bankers Trust, but that Chemical offered a better deal.
Chemical sought to convince Judge Garrity that no DIP lender would give up the super priority lien provided to DIP lenders under the bankruptcy code.
After the hearing, David Wiltenburg, of Hughes, Hubbard & Reed, counsel to Isetan, said Barneys was trying to “back the court and all the parties into a corner.” He added, “That is not a good way to do business.”
Concerning its position on the DIP deal, Wiltenburg said: “In the business world, landlords don’t provide the entire guarantee for their tenants.”
Richard S. Toder, counsel to Chemical, said Isetan and Barneys were “playing a piece of gamesmanship because of the litigation between the parties.” The two sides, he said, were “trying to posture.”
A second interim DIP hearing had been set for Jan. 19 but got pushed back until Jan. 23. A final DIP hearing is set for Jan. 31.
At the same time, the $20 million interim agreement was raised to $28 million. The total Chemical deal is for $100 million.
In addition, an organizational meeting of unsecured creditors is scheduled for Jan. 22 at 2 p.m. at the U.S. Trustee’s office, 80 Broad St. here.
While the two sides were at a standoff over the real estate security issue, Barneys stewed, knowing its $937,000 cash on hand was not enough to convince vendors to ship spring merchandise. Barneys was aware that every day that passed without the financing meant sparser pickings on the shelves.
Barneys filed for Chapter 11 protection late in the evening of Jan. 10, after battling with Isetan for almost a year over the shape of their partnership deal.
An attorney for Barneys said Wednesday there are no longer negotiations between the two sides.
Meanwhile, Barneys president and chief operating officer Charles W. Bunstine was in Milan to meet with key accounts and attend the Armani show. He insisted the trip wasn’t meant as a damage control mission, although he took time to explain to various Italian companies — which comprise 80 percent of Barneys’ vendors — what the bankruptcy proceeding is all about and the retailer’s strategy.
“People didn’t really understand that the bankruptcy is a vehicle to solve a partnership problem,” Bunstine said. “Also people need to keep in mind that this isn’t just a bankruptcy, but that we have also sued Isetan and filed a reorganization plan,” he added.
“People are asking me if we still plan on the same kind of growth for the company, and I tell them that we are,” Bunstine said.