Liberty House rescue
goes before judge

Two groups use a loan to vie
for control of the chain

By Peter Wagner
Star-Bulletin

A federal bankruptcy judge today was expected to decide on an emergency loan to keep Liberty House afloat as it works to regroup under Chapter 11 of the U.S. Bankruptcy code.

Competing offers of $50 million in emergency financing have come from Bank of America Group and General Electric Capital Corp., conflicting interests in the battle for control of the 149-year-old Hawaii retailer.

Attorneys for all sides scrambled today to resolve concerns over landlord issues at malls where the store operates. Under terms of the proposed emergency financing, to tide Liberty House over for a year, the lenders are demanding lucrative store leases as collateral.

At a court hearing this morning, attorneys for some landlords, including Pearlridge Center and Aloha Tower Marketplace, expressed concern over such a plan, saying they were not consulted.

After the brief hearing, Bankruptcy Judge Lloyd King gave the attorneys a few hours to hash out their differences and ordered all sides to reconvene this afternoon.

Liberty House, which filed for bankruptcy on March 13, initially sought approval of GECC's loan. But a bidding war began when Bank of America Group, representing store lenders, countered with slightly lower interest rates.

Judge King last week postponed a decision on the matter until today, allowing Liberty House to spend about $5 million to $6 million to keep its doors open meanwhile. But that expires at the end of business today.

The court today was also considering a motion to allow Liberty House to spend its store receipts for day-to-day operations until longer-term financing is approved.

The $50 million "rescue" money would allow Liberty House to operate for about a year, company officials say, time to work out a plan to pay creditors and regain profitability. Such a plan would need the approval of a committee of creditors and the bankruptcy court.

The bankruptcy filing came after Liberty House in February announced plans to lay off 162 workers. The retailer, Hawaii's largest and oldest department store chain, suffered heavy losses from Hawaii's economic downturn and lower spending by Japanese tourists in the past two years. The store cited debts of $202 million to be restructured under the proposed Chapter 11 reorganization.

But the bankruptcy petition was a last-minute affair, company officials say, prompted by a boardroom struggle for Liberty House assets.

The action came shortly after Bank of America on March 13 appointed a new board of directors for the store, claiming it defaulted on a $173 million loan. Seeing the move as a prelude to liquidation, the existing board -- largely represented by Liberty House owner JMB Realty Corp. -- quickly filed to protect its property.