BARNEYS GETS $20M DIP FUND BOOST; ISETAN WON’T MAKE CHAPTER 11 EASY
Byline: Jeff Siegel– with contributions from Koji Hirano, Tokyo
NEW YORK — In a smooth day in court Tuesday, Barneys received an additional $20 million in debtor-in-possession financing.
But fireworks kept coming from its partner in Tokyo, where Michio Jomori, executive vice president of Isetan, said his firm won’t concede any points to Barneys to end the Chapter 11 conflict sooner.
In other action Tuesday:
* The construction company that built the $350 million Madison Avenue Barneys store filed a lien against the property for $6 million in unpaid bills.
* A dress and suit vendor claimed Barneys buyers gave out misleading information in the wake of the Chapter 11 filing to convince the manufacturer to ship goods.
The additional $20 million in financing brings Barneys’ total court-approval DIP to $48 million. On Jan. 31, Barneys plans to seek approval for its entire $100 million debtor-in-possession package with Chemical Bank.
Bankruptcy Judge James Garrity Jr. approved the additional $20 million after John Campo, Barneys’ lawyer, told the judge that the company needed the package — which includes an additional $5 million in letters of credit and $15 million in cash — to pay for merchandise, rent, payroll and capital expenditures.
Without the additional funds, Campo said, Barneys would have “insufficient cash to go forward.” Campo noted that “many vendors have insisted on LCs,” making it imperative that the company have them so it can unclog the flow of inventory.
Under questioning from the judge, Campo said Barneys had only used about $2.8 million of the $28 million received last week. Campo said Barneys’ letter of credit facility, which did not start up until Monday, will now begin to issue about $20 million in letters of credit.
Barneys said $20 million of the total $100 million facility is carved out for its purchase of credit card receivables from Barneys New York Credit Co. LP, the Barneys unit that operates its private label credit card business. Another $15 million will be used to cover cash flow shortages over the first 30 days of the Chapter 11 and at least $20 million is set aside for letters of credit.
Campo added that at the request of Barneys’ creditors, Barneys’ executives would provide a “detailed accounting” of how Barneys would spend its DIP money.
The 75-minute hearing followed three hours of informal meetings in and around the courtroom as attorneys for Barneys, creditors and lenders negotiated last-minute changes to the DIP agreement.
David LeMay, an attorney for Isetan who has been in the front lines of the war with Barneys and was involved in the last-minute legal maneuverings, told Judge Garrity that Isetan, while still standing by the objections it made in court last week, had nothing more to add.
Lawrence M. Handelsman, of Stroock & Stroock & Lavan, counsel to the unsecured creditors’ committee, made no objection to the second portion of Barneys’ financing deal.
Stroock & Lavan was one of five law firms vying to represent the 15-member committee. It got the nod Monday evening. The trade, which won three seats on the committee, is owed roughly $44 million.
Tuesday’s hearing was in stark contrast to the first DIP hearing, which lasted eight hours over two days and was marked by heated questioning by Isetan attorneys of Barneys’ witnesses. The lack of extended argument did not go unnoticed by Judge Garrity.
“I’m very pleased that the parties were able to come to an understanding,” said Garrity, noting that there are some “very significant issues confronting the debtors at the start of the case.”
Meanwhile, a dress and suit vendor, Margot Designs Inc., here, owed between $20,000 and $30,000 by Barneys, said it would not be shipping $60,000 in spring goods to the embattled retailer because of uncertainty over the sufficiency of the DIP facility.
“Barneys’ buying office told us the day after it filed Chapter 11 that we shouldn’t be concerned about the store’s DIP facility and that we would get paid no matter what,” said Philip Ittelson, president of the company.
Ittelson said he remained concerned and checked with his accountant, who told him not to ship until the DIP was secured.
“Fortunately, I had someone tell me it wasn’t true,” said Ittelson. “Otherwise I would have gotten burned again.” Despite Barneys having $48 million of a total $100 million DIP deal approved by the court, Ittelson said Tuesday he remains unconvinced that payment is guaranteed. He said he has arranged alternative channels to sell the Barneys goods, including stores run by the vendor.
“I asked Barneys for COD terms on the January shipment, but they refused, saying I should ship with the expectation that payment was guaranteed,” Ittelson said.
As for Isetan and its plan to keep fighting through the Chapter 11, Jomori told WWD, “Barneys charges that former Isetan management had a better understanding of retailing and that current management doesn’t understand Barneys business and the original agreement. But everything new management has done was reasonable and designed to protect our investment and loan.”
Jomori came to Isetan from Mitsubishi, the retailer’s main bank, shortly after Kuniyasu Kosuge resigned as Isetan president in May 1993. Kosuge had developed the relationship with Barneys. [That relationship is now the crux of the conflict between the two companies that led Barneys to file Chapter 11.]
Jomori said that he was not sure how much Isetan will lose from its Barneys deals. But Isetan’s financial condition will not be severely damaged, he said, noting that the Japanese firm has a net worth of about $1.4 billion.
Turning to Barneys Japan, Jomori said that although the contract to form the joint venture in Japan was signed at the same time as the contract over real estate rent for three Barneys stores in the U.S. — Madison Avenue, Chicago and Beverly Hills — the two contracts don’t affect each other.
“There is no reason to put an end to the business of Barneys Japan,” Jomori said, adding, “Barneys Japan is the only project with Barneys that Isetan is satisfied with.”
— Fairchild News Service