MGR COULD BE OUT OF CHAP. 11 IN JUNE
Byline: Carol Emert
WASHINGTON — Merry-Go-Round Enterprises Inc., Joppa, Md., could be out of bankruptcy protection as early as June.
After nearly a year in Chapter 11 proceedings, the company, which operates 1,200 youth-oriented apparel stores around the country, has tentatively accepted a reorganization plan authored by its major creditors.
The plan, revealed Friday, values the company at $280 million, according to Wilbur Ross, senior managing director of Rothschild Inc., financial advisor to MGR’s equity committee.
Unsecured creditors would get 75 percent of the distributable value of the company upon emergence, accounting for 100 percent of the amount owed them, in a combination of cash, market-rate notes and stock in the new company.
Shareholders are slated to receive 25 percent of the company’s distributable value in new stock, possibly combined with warrants. Merry-Go-Round had virtually no secured debt when it filed for Chapter 11 protection Jan. 11, 1994.
A final reorganization plan is expected to be filed in federal bankruptcy court in Baltimore by mid-February.
The surprise announcement of the plan significantly shortens the amount of time company management had expected to remain under court protection. When Thomas C. Shull, Merry-Go-Round’s acting president and chief executive officer, and Kenney were hired last November, they said they would not ask for an extension of the exclusivity period until this summer, and emergence would not occur for several months after that.
If the new plan is approved by the court, as expected — and if Merry-Go-Round’s sales performance improves in the next few months — the company will probably emerge from bankruptcy protection between June and August, said James Kenney, the company’s acting executive vice president and chief operating officer. With the likelihood of a summer emergence, the bankruptcy parties are ready to begin looking for permanent management to replace Shull and Kenney, with the search focusing on strong merchandisers, Ross said.
Separately last week, the bankruptcy parties reached agreement on the compensation packages of Shull and Kenney, who helped negotiate the R.H. Macy & Co. bankruptcy case last year.
The two have been working without a contract since November, when they replaced company co-founder and chairman Leonard (Boogie) Weinglass and president Michael Sullivan. A December confirmation hearing in bankruptcy court was rescheduled to this Thursday while the bonus terms are being hammered out.
The new compensation agreement, which is not directly related to the reorganization plan, lowers Shull’s and Kenney’s maximum bonus to about $1 million from more than $2 million in a proposal put forth last month by the company and the equity committee.
The new contract would end in June, with one-month options to renew, rather than February 1996, the end date of the original contract. Salary terms remain the same, $95,000 per month, which would go to Shull and Kenney’s crisis management firm, Meridian Ventures, Hilton Head, S.C.
Under the reorganization plan, on an estimated $225 million in unsecured claims debt holders would receive between $25 million and $50 million in cash, or 11 to 22 percent of their total package. They would get 31 to 53 percent in notes and the remainder in stock, according to Ross.
Equity holders would get about 66 cents for each share of the old Merry-Go-Round stock they owned, or about the rate the stock traded during the last several weeks. Share prices rose on Friday, however, to close at $1.
The reorganization proposal will not affect the planned closing of 200 stores early in 1995 which will reduce the number of Merry-Go-Round stores to approximately 1,000 from the more than 1,400 last January. — Fairchild News Service