Monday, March 1, 1999

Liberty House

Liberty House
reorg plan due

The ailing retailer's filing
will unveil how and when it
will repay creditors

By Peter Wagner


Almost a year after seeking protection from its creditors in the biggest Chapter 11 bankruptcy in the state's history, Liberty House is nearing the end of its painful journey.

The company today was to seek a one-week extension to file its reorganization plan, technically due today.

The plan, eagerly anticipated since Liberty House filed for bankruptcy on March 19, 1998, will provide a business blueprint for the next three years and spell out how thousands of creditors will be repaid.

If approved by creditors and the court -- a process that could take several months -- the burden of more than $200 million in debts could be lifted from the struggling retailer, humbled by its fall from the top.

But where will Liberty House, operating in the red and struggling with a two-year slump, find the means to pay its gigantic debt?

Cutting its losses, the retailer since 1997 has cut 1,350 jobs and closed 20 of its least-profitable stores. But despite a good Christmas season, "profitability" remains a challenge.

Few observers see an alternative to new ownership.

"I see either a merger or a sellout," said retail analyst Stephany Sofos, president of S.L. Sofos & Co. Ltd.

"You cannot be competitive in the world today unless you are aligned with national or international groups." Sofos said Liberty House recently took a step in that direction by contracting with world-renowned chef Alan Wong to operate a restaurant and food concessions at the Ala Moana Center store.

Marty Plotnick, retail expert and president of Creative Resources Inc., thinks Liberty House will plod along until a suitable offer comes to owner JMB Realty Corp.

"I think they will ask forbearance from all constituencies to pay them back over 10 years," he said.

According to Plotnick, JMB has turned down at least three offers from mainland department store companies in the past year.

The Bank of America lending group, owed more than $150 million, late last year offered to trade debt for equity in Liberty House. The off-handed offer was dismissed by Liberty House as lacking in detail.

Liberty House president John Monahan last week was in Los Angeles with the Bank of America group and other creditors trying to find a reorganization plan that all can accept before time runs out.

A debtor has 120 days after filing for bankruptcy to submit a reorganization plan, after which any party with a claim may show up at U.S. Bankruptcy Court with a plan of its own. While there is no strict deadline on the filing of a plan, the ability of creditors to file opposing plans puts pressure on Liberty House to file within the exclusive period.

Liberty House's period of exclusivity -- extended twice since the company filed for bankruptcy last March -- expired yesterday.

According to court documents, Liberty House anticipates more than $200 million in claims against the company.

Major creditors, headed by the Bank of America, last year tried to take control of Liberty House by appointing their own board of directors, putting Liberty House under the direction of opposing boards.

A legal skirmish between the two boards has been on hold, pending a reorganization plan.

The reorganization plan sets up a priority system to repay debts, with creditors divided into different categories -- secured creditors, unsecured creditors and company shareholders.

Secured creditors usually are paid first, with company shareholders last on the totem pole.

Along with the plan, the debtor is required to submit a "disclosure" statement addressed in plain language to creditors in the case.

The disclosure must include enough information about a company's assets, liabilities and other affairs to allow an informed judgment on the plan.

Liberty House, which currently has until April 30 to win approval of its plan from creditors, is expected to mail nearly 2,000 copies of the plan and disclosure along with voting ballots.

If approved by at least a two-thirds margin, the plan goes before the court for final approval.

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