Liberty House gets
$13 million reprieve

The court approves an
interim loan to restock
store shelves

By Peter Wagner
Star-Bulletin

Liberty House has been lifted by the approval of a $13 million interim loan allowing the retailer to restock its shelves.

But the financing approved yesterday by U.S. Bankruptcy Judge Lloyd King did little to ease tensions between two conflicting boards of directors vying for control of the department store chain.

"My clients consider themselves the legitimate board," said attorney Larry Wolfson, representing Liberty House owner Chicago-based JMB Realty Corp. and a six-member board that favored a different source of financing.

The $13 million is part of a $50 million package offered by Bank of America Group, which is competing with a similar offer by General Electric Capital Corp.

Judge King yesterday postponed a final decision on the full financing package until Thursday, saying more time is needed to resolve numerous conflicts in the complex Chapter 11 reorganization case.

Among the conflicts is the lenders' plan to secure loans with store leases at six of Liberty House's most lucrative locations. Those are Ala Moana Center, Kahala Mall, Pearlridge, downtown, Kaahumanu on Maui and Makalapua on the Big Island. Most of the landlords, led by Ala Moana Center's owner D/E Hawaii Joint Venture, have raised objections saying they would lose control of the tenant mix at their properties.

The store's Ala Moana lease was appraised at $90 million in February.

Meanwhile, King said, partial financing is critical to allow Liberty House move ahead.

"This is a large and fragile reorganization and it's necessary to get on with things," he said.

Liberty House President John Monahan yesterday hailed the decision, saying it will allow the store to resume badly needed orders from vendors and suppliers.

"We are gratified that the source of our debtor-in-posession interim financing has been resolved," he said. "We are moving rapidly to restock our stores."

The Bank of America-led group of lenders on March 19 appointed a new board of directors for the department store, saying Liberty House had defaulted on loans. The existing board, largely represented by JMB Realty, filed for bankruptcy protection later that day.

The two boards, currently battling for recognition in a Philadelphia court, are split over who should provide emergency financing for the struggling retailer.

The new board, which favors the Bank of America Group package, yesterday won an early round in the struggle.

Wolfson, representing JMB Realty, questioned the motives of the new board in pushing for the Bank of America deal. He noted the group's $13 offer will cost $225,000 to $250,000 more in interest and fees than GECC's offer over two years, a point that wasn't contested.

But King said he has faith in the Bank of America group. "I'm satisfied they are proceeding in good faith."