Liberty House
gets offer from
its lenders

Lenders offer to convert
over $150 million of debt for
a controlling stake

By Rick Daysog
and Peter Wagner
Star-Bulletin

Liberty House's lenders have offered to convert more than $150 million of the cash-strapped retailer's debt for a controlling stake in the company, in a plan that will help the company emerge from bankruptcy reorganization next year.

Liberty House today confirmed it received a proposal from its lenders, headed by Bank of America, that it was willing to swap the debt for an ownership stake.

Liberty House cautioned that there has no agreement between the lenders and the retailers.

John Monahan, Liberty House's president, today said it's premature to talk about that plan, which would require an evaluation of the company's assets.

Meanwhile, in federal bankruptcy court today, Liberty House and its creditors today appeared close to an agreement on the retailer's request for more time to complete its bankruptcy reorganization plan.

The company, which won an earlier extension from mid-July to Nov. 13, now says it needs an additional extension until Feb. 28 to file its plan for emerging from bankruptcy.

The retailer says the new extension is needed so it won't be distracted during the critical holiday sales season.

At a hearing this morning, Judge Lloyd King postponed a decision on the extension request until later this afternoon.

The company and its creditors said that late Friday they reached a tentative deal on the extension, provided no further extensions are sought.

Major creditors, led by Bank of America, had earlier objected to the extension, saying that Liberty House already had enough time to file the plan.

But in recent court filings, Liberty House argued that a deadline extension was warranted. "Bankruptcy courts accept the reality that a retail debtor's management must focus on operating its business during the holiday season," the company said.

"Almost without fail, courts in Chapter 11 retail cases extend the debtor's exclusivity periods to include at least one if not more holiday seasons, undoubtedly because of the tremendous value of the holiday sales information to the formation, negotiation and confirmation of a successful Chapter 11 plan."

The plan is at issue because until it is filed and approved, Liberty House is protected from its creditors.

A reorganization plan shows how a company will become profitable and how it will pay its debtors.

Along with its request for time to file the plan, Liberty House is asking for an extension, from Jan. 15 to April 30, for creditors to approve the plan.

According to court records, Liberty House in the first six months of Chapter 11 bankruptcy spent $3.4 million on attorneys, accountants, and business consultants. The figure could easily double before the case -- the largest of its kind in the state's history -- is closed.

Liberty House says it is not "dawdling" in reorganization efforts.