LNT Files for Ch. 11 Bankruptcy Protection

Brent Felgner, May 5, 2008

The other shoe finally dropped last Friday, and industry suppliers are now preparing to open up shipping lanes to Linens 'n Things as soon as they clarify the retailer's debtor-in-possession financing.

LNT, the nation's second largest specialty retailer of home textiles with $2.8 billion in sales and 589 stores, filed for Chapter 11 bankruptcy protection, in the process replacing Robert Di Nicola as president and ceo — moving him upstairs to executive chairman. Michael Gries, a principal of Conway Del Genio Gries & Co., was named interim ceo and chief restructuring officer. In bankruptcy court in Delaware Friday afternoon, Gries could not be reached for comment. Other members of management were also not available.

LNT's evp of store operations, F. David Coder, was named president and coo, the company said in a filing with the Securities and Exchange Commission.

The bankruptcy petition listed total assets of $1.7 billion, with total debt of $1.4 billion as of Dec. 29, 2007.

The filing ended weeks of speculation about whether — and more importantly, when — the retailer would take that course. Two weeks ago, LNT missed a $16.1 million interest payment in an arranged forbearance agreement with secured lenders. The company on Friday said it would close 120 unproductive stores.

"It was necessary that they do this because of the situation," said Gilbert Harrison, ceo of Financo, a private investment bank hired by LNT to seek out strategic alternatives. "Hopefully they will emerge as a smaller but more cleaned up company. They had a lot of problems. The biggest is that when they took over this company they had 1,000 trailers of bad merchandise sitting in the back of all the stores. It was a mess."

DiNicola had earlier announced a nine-year turnaround plan for LNT. As recently as last month he noted that the plan was on track, but that the economy was slowing its progress.

LNT was bought out in early 2006 by a group including Apollo Management, National Realty & Development Corp., and Silver Point Capital. Apollo is the controlling shareholder. In recent weeks, the company has been searching for alternatives to its mounting financial crisis, exacerbated by the downturn in housing and consumer spending.

"It makes sense to me that they're doing this. It allows them to shed some debt, reorganize their business, and the main thing is to close the stores that are unprofitable for them," said David Greenstein, president of Homestead, a division of Li & Fung. "We look forward to being able to support and ship them in the future; we've been protecting their inventories until they're financial capable."

Similarly, Loren Sweet, president of Brentwood Originals, said he was relieved. "We look forward to continuing with them."

Vendors earlier worried aloud about the potential for a liquidation, a possibility top of mind following Dan River's announced liquidation recently. As it is, unsecured creditors' chances of recovering much if anything, given the extent of LNT's debt structure, seems speculative. The company reported $650 million in notes outstanding. In the SEC filing, LNT stated that the Chapter 11 petition may trigger a default; however it said it believes efforts to enforce those obligations will be stayed as a result of the bankruptcy.

DIP financing is being arranged through General Electric Credit Corporation and other so far unidentified lenders. The DIP credit facility will consist of a revolver up to $700 million, with a $400 million sub-limit for letters of credit. The Canadian revolver will go up to $50 million.

Included among the largest 30 unsecured creditors were Aeolus Down, $4.3 million; Brentwood Originals, $3.5 million; Regal Home, $3.1 million; Croscill, $2.1 million; Royale Linens, $2.0 million; Maples Industries, $1.9 million; Homestead International Group Import, $1.8 million; Pacific Coast Feather, $1.6 million; India Ink, $1.3 million; Richloom Home Fashions, $1.2 million; S. Lichtenberg & Co., $1.2 million; and CHF Industries Import, $1.1 million. Springs Global and CIT, both known to be among the largest creditors, were not included on the creditors' list.

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