LNT reorg plan never won needed support
October 7, 2008-- Home Textiles Today,
Clifton, NJ — It was the failure of Linens 'n Things' reorganization plan to win the support of the noteholders’ committee that brought the chain to its decision to seek a Section 363 auction of its assets or, considered more likely, to liquidate and go out of business.
After five months and four rounds of store closings that whittled the chain down by nearly 40% — closing 218 stores — and after negotiating and renegotiating waivers to its debtor-in-possession financing agreement to sidestep defaults, LNT said it was left with few choices. It could either find investors and sell the chain as an ongoing business in a forced Section 363 auction, complete with its “cram-down” provisions, or simply shut down, closing its remaining 371 stores.
But in any event, court records clearly state that a vote on a consensual plan of reorganization couldn’t happen.
“Unfortunately, notwithstanding the expenditure of significant efforts by the debtors, they were unable to garner the requisite support of the Ad Hoc Noteholders Committee’s [sic] affirmative support in order to move forward with the plan,” the motion stated.
LNT said it worked long and hard on the reorganization plan and remained in constant contact with its creditor constituencies. Under a deadline to file a plan by Aug. 29 in order to avoid another DIP default scenario, it moved forward and filed the plan and disclosure statement it had in hand on that date, without the noteholders’ support.
“Accordingly, following the filing of the plan, the debtors and their advisors continued their discussions with GECC, the creditors’ committee and the Ad Hoc Noteholders Committee in an effort to obtain support for the plan,” the court document stated.
When those talks failed, it left, really, only two choices:
“Despite the exploration of numerous alternatives, the debtors have been left in the position of needing to (1) either commence the orderly liquidation of their remaining assets, (2) enter into a transaction providing for the going-concern sale of the debtors’ businesses,” or find some other way to maximize the return to creditors.
There is apparently still some hope of a sale to an investor group, according to Financo’s Mary Ann Domuracki, although it’s unclear how realistic that might be or under what circumstances. The company said any buyer of the remaining chain would likely shutter additional stores. She did not identify any potential buyers.
That leaves the liquidation scenario. The auction has been requested for Oct. 14, with the GOB sales to begin Oct. 16, if there’s no buyer. Before that, the door will remain open for a short time to find a stalking horse bidder. The successful part of LNT’s business, the Canadian stores, which never entered bankruptcy, might or might not be included in an auction or liquidation.
But at this point, the discussion has evolved into how “to maximize fully the value of the debtors’ assets.”