Ala Moana balks
over Liberty House
rescue terms

The center's owner says
it would be iced out of deciding
its tenant mix

By Peter Wagner
Star-Bulletin

The owners of Ala Moana Center are balking at the terms of a $50 million emergency financing proposal for Liberty House that would use store leases as collateral.

"We're not trying to prevent Liberty House from obtaining financing," said Leslie Kobayashi, attorney for Ala Moana Center owner D/E Hawaii Joint Venture. "We think the shopping center is a valuable asset to Hawaii and we're concerned about its tenant mix."

D/E Hawaii is objecting to a proposal by General Electric Capital Corp. to provide up to $50 million over two years to Liberty House, using leases at its shopping center locations as collateral. The leases, at Ala Moana Center, Kahala Mall, and Pearlridge Center on Oahu and locations on the neighbor islands, are thought to be worth more than $100 million.

Kobayashi said terms of the proposal would improperly take control of the Ala Moana lease and leave D/E Hawaii out of deciding who would replace Liberty House at the shopping center should the retailer go out of business. The 330,000 square-foot store anchors the shopping center.

"Lenders know banking, they don't know retail," said Kobayashi. "We're concerned they might want to give the the property to the highest bidder and the highest bidder might not be what's best for the center."

A hearing on the matter yesterday before federal Bankruptcy Judge Lloyd King was continued this morning as a raft of attorneys representing Liberty House, its creditors, landlords and vendors looked for ways to put the store back on its feet in the Chapter 11 reorganization case.

At this morning's hearing, Ala Moana Center attorneys argued the financing proposals would violate their lease agreement with Liberty House.

Liberty House attorney Bruce Bennett yesterday said similar concerns raised by other landlords had been tentatively resolved. He predicted that Ala Moana Center's concerns would not get in the way of the financing.

"It seems to me to be a pure question of law," Bennett said. "They don't have a right to get in the way of this particular transaction."

Two lenders -- General Electric Capital Corp. and the Bank of America Group -- have offered similar loans of up to $50 million to keep Liberty House in business while it puts together a a reorganization plan. Observers say it could take over a year to formulate such a plan to pay creditors and restore profitability.

The court allowed Liberty House to continue operations with available cash until the issue of the $50 million loan is settled.

Meanwhile, in a separate court filing yesterday, it was disclosed that Liberty House in the past year has paid $770,000 to Los Angeles law firm Hennigan, Mercer & Bennett for past and future services connected with the bankruptcy.