Liberty House
lenders redo plan
The new version is more
By Rob Perez
favorable to the unsecured creditors
Star-Bulletin
Liberty House's major lenders and a committee of unsecured creditors have jointly developed a new bankruptcy reorganization plan for the embattled retailer.
But JMB Realty Corp., Liberty House's owner, says the new plan still undervalues the company and doesn't provide a process for Liberty House to pursue claims for damages against the lenders.
"We think that is a substantial deficiency," JMB executive vice president Steve Plonsker said today.
The reorganization plan filed yesterday in U.S. Bankruptcy Court replaces a plan the lenders filed in April.
By obtaining the support of the unsecured creditors committee, which represents the seven largest vendors of Liberty House, the joint plan has a better chance of winning court confirmation. It values the retailer at $174 million.
But JMB has filed its own plan, which values Liberty House at $252 million and sets up a process outside of the bankruptcy proceeding for pursuing the claims against the lenders.
The competing plans provide a process for moving Liberty House out of its Chapter 11 bankruptcy, which the company entered in March 1998.
A hearing on the two proposals is scheduled for May 26 before Bankruptcy Judge Lloyd King.
The joint plan would give the lenders 99.5 percent ownership in the reorganized Liberty House. It also increases the return that unsecured creditors would get for their claims.
Under the lenders' original plan, for instance, unsecured creditors with claims over $5,000 -- the vast majority of the unsecured claims -- would have received cash payments equaling 50 percent of their claims or stock representing 45 percent, according to Chuck Choi, an attorney representing the unsecured creditors committee.
"It was completely unacceptable," Choi said.
Under the new plan, those same unsecured creditors would get a 90 percent return -- 40 percent in cash up front and another 50 percent in 10 installments over five years.
"This latest plan is much more confirmable with the committee on board as an ally," Choi said.
Tom Roesser, an attorney representing the lenders, also said the new plan has a provision that would enable JMB Realty to pay the lenders $147.5 million to acquire 99.5 percent of the reorganized retailer.
If Liberty House is worth as much as JMB claims, that price would be a bargain, Roesser said. "That's what we call in the business a "put-up-or-shut-up' provision," he said.
But Plonsker said the fair value for the company will be determined in court, and JMB intends to present evidence showing its $252 million valuation is sound.
"Their new attempt of a plan continues to full far short of a fair valuation," he said.
Plonsker also said the revised plan is yet another indication the lenders have no long-term interest in the health of Liberty House.
He said JMB doesn't intend at this point to make any revisions in its proposed reorganization plan.
Roesser said the joint plan doesn't set up a process to resolve claims against the lenders because such claims are without merit.
"JMB is simply trying to use this to obtain more than it's entitled to," Roesser said.
The fact that the unsecured creditors committee -- a neutral party that previously hadn't taken sides -- has joined with the lenders in supporting the new plan says a lot about the plan's merit, Roesser added.
