NEW YORK — Barneys found an ally Tuesday in its battle with Isetan Co. Ltd., its Tokyo-based partner.
The retailer’s creditors’ committee has asked the court to stop Barneys’ roughly $2 million in monthly rent payments on three flagship stores and rule that the landlord-tenant relationship between Isetan and Barneys is not based on a true lease.
Barneys and Isetan are scheduled to square off in bankruptcy court today on Isetan’s request to be paid rent on the Madison Avenue, Chicago and Beverly Hills stores during the Chapter 11.
Barneys has no plans to pay Isetan rent, based on its assertion that Isetan is an equity partner — not a landlord.
Barneys, which is asking Bankruptcy Court Judge James Garrity to freeze rent payments for the next 60 days and to rule during this time that Isetan agreements are not true leases, is expected to file a motion for summary judgment on the rent issue today.
The creditors’ committee’s objection to Isetan’s request for rent payments is no surprise. Payments to Isetan could result in Barneys defaulting on its debtor-in-possession financing deal with Chemical Bank. This scenario is based on a financial forecast by the Blackstone Group, Barneys’ financial adviser. The forecast allots only $10 million in annual rent payments for the retailer for stores other than the three flagships.
The allotment does not include the $25 million in annual rent Barneys had paid to Isetan. Barneys’ payments to Isetan stopped when it missed a $1.25 million payment this month, leading to the Jan. 10 Chapter 11 filing to avoid the threat of foreclosure.
Isetan claims it is not an equity partner and is pushing for the rent.
Barneys will seek today to gain court approval of the remaining $52 million in DIP financing from Chemical, bringing the total DIP to $100 million. The full package depends on Barneys purchasing roughly $21 million in private credit card receivables from Barneys New York Credit LP, a Barneys affiliate not in Chapter 11.
The purchase is necessary because Chemical agreed to lend Barneys only $75 million and would no longer finance ongoing receivables unless the retailer brought the highly profitable and secure receivables under the Chapter 11 umbrella.
The purchase, for roughly $20.3 million, will be made with a portion of additional DIP financing.
In court papers, Irvin A. Rosenthal, senior vice president and chief financial officer of Barneys, said 15 percent of Barneys’ sales are made on its own charge card.
In the year ended March 31, 1995, private credit card sales totaled $52.7 million, up 49 percent from the prior year, Rosenthal said in court papers. Barneys netted $729,000 from its private credit card business in the year, up 57 percent from 1994.
Isetan is trying to block the sale, claiming it owns the assets of Barneys’ credit card company. It is also objecting to Barneys’ application for access to the remaining $52 million in DIP financing.
In other developments Tuesday:
* Barneys received court permission to pay all vendors who received orders prior to the Jan. 10 Chapter 11, but did not yet ship merchandise. Barneys said vendors had been reluctant to ship.
* Barneys got permission to pay about $317,000 to freight forwarders and customs brokers holding between $1 million and $2 million in goods, to release merchandise and send it to Barneys’ distribution center.
* Judge Garrity allowed Barneys to pay up to $200,000 to Circle Management Ltd. to keep open Mad.61, the restaurant in its Madison Avenue store. Circle operates Mad.61 and a cafe at the store. Barneys owns 75 percent of the restaurants; Circle owns 25 percent. Barneys owes Circle about $500,000.
The restaurants registered a pre-tax profit of about $1 million last year on sales of $7.3 million, according to bankruptcy court papers. — Fairchild News Service