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In Waning Days, LNT Shows a Profit

Brent Felgner -- Home Textiles Today, December 15, 2008

In the final throes of liquidation, Linens 'n Things has shown a net profit for the first time since 2005, the period before it was acquired by a private equity venture led by Apollo Management and took on enormous amounts of debt to fund the buyout.

At this point, the company's profitability – $17.6 million in October, disclosed in its monthly operating report to the federal bankruptcy court — is neither surprising nor particularly ironic. It simply reflects the effect of a slashed expense structure from store closings and the fact that LNT has no further need to replenish inventories — elbow room the retailer never had while a going concern and still trying to service its debt.

LNT also received a lump sum payment from the liquidators as the GOB sales got underway.

After a slow start, the company's sales kicked into higher gear post-Thanksgiving. Hesitant but bargain-hungry shoppers were spurred on by LNT's deepening discounts – now mostly 40%-60%, shouted from "Going Out of Business" and "Everything Must Go" placards on, in and around the stores. LNT's liquidators also briefly went on TV with short commercials, mostly 10 seconds in length, in very short flights.

The strategies have taken hold, it would appear. Visits in recent days to a number of stores in Florida and New Jersey showed them 75%-80% emptied of merchandise; the emphasis seemed to be shifting to the selling off of fixtures.

In the meantime, LNT has filed an amended plan of reorganization with an update of the liquidation process, a handful of store leases were auctioned off, and the creditors committee reached an understanding with Apollo on a confidentiality agreement that would permit it to respond to the committee's subpoenas.

The creditors committee is pursuing a Rule 2004 investigation of LNT's financial transactions and decision making from the time leading up the original buyout to the present, in a bid to realize some recovery for the unsecureds — many of them trade creditors.

The amended plan of liquidation states that it cannot predict any payout to the unsecureds, since amounts, if any, are contingent on available funds after other classes of creditors are paid. Secured noteholders are projected to be paid 25%-30% of their claims, the filing stated. Administrative, priority and tax claims would be paid 100%, and equity holders would receive nothing.

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