LNT Gets Help From Lenders, Court
Brent Felgner -- Home Textiles Today, July 28, 2008
A federal bankruptcy court judge has approved new bidding procedures for a second round of up to 87 additional Linens 'n Things' store closings, along with waivers in its $700 million debtor-in-possession financing agreement crucial to protecting the still-struggling retailer from a devastating default.
No objections were filed to the changes in the DIP agreement by LNT's secured lenders, led by General Electric Capital Corporation. The bankrupt retailer sought the amendments after its sales for the four-week periods ending July 5 and July 12 came in at less than the minimum 90% of the budgeted amounts in the DIP loan agreement.
While the lenders agreed to the changes, subject to terms, LNT said in court papers that it was seeking the amendments "to avoid the potentially damaging perception by parties in interest, including vendors, contract parties and customers, that the DIP lenders might exercise such remedies and adversely affect the debtors' business operations."
The DIP defaults could have triggered a number of actions, ranging from limitations on LNT's use of cash collateral to a complete termination of the credit agreement, and the resulting potential for liquidation. "Any one of these results would be devastating to the debtors' business," the company stated in court documents.
The auction for the second round of store closing sales — in which up to 87 stores could be closed, has been slated for Aug. 11 with a confirmation hearing Aug. 14. The court ruled that bids are due by Aug. 4 and objections, if any, must be filed by Aug. 7.
While up to 87 stores were approved for closure, LNT has identified 58 specific locations to date. The new auction is planned even as the first group of 120 stores is still being closed and their leases sold off. Once completed, the chain's size would be reduced by roughly one-third.
LNT has continued to struggle in bankruptcy, as the larger economy has, and while a new business plan is being contemplated. In its first operating report since entering bankruptcy May 2, the company reported a net loss of $31 million on gross revenue of $117.9 million during the first 22 days after the filing, the period ending May 24.
LNT reported a 40.19% gross margin — $47.4 million. Selling, general and administrative expenses totaled $34.5 million, and store expenses were $43.7 million. Markdowns came in at $14.3 million but after allowances netted $4.2 million.
Linens 'n Things recorded total assets of $1.479 billion against total liabilities of $1.442 billion.
For the four-weeks from April 27 to May 24, LNT reported total sales of $159 million, a net operating cash flow of $68.4 million with a $10.5 million decrease in cash. For the four-week period, total operating expenses were $68.3 million; trade payments were $21.4 million. During the four weeks, LNT recorded a net cash flow of $52.5 million.
About two weeks ago, the company won court approve of its "Trade Vendor Payment Program," establishing a $100 million letter of credit enabling it to purchase up to $200 million in goods with extended terms from participating vendors. The company said then it was crucial to its ability to get more from its DIP facility, as well as to assure vendors that they would be paid at least half of their invoices during bankruptcy.
It's unknown at this point how many vendors have decided to participate.
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