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Liberty House
By Peter Wagner
gets OK for $20 mil
credit line
Star-BulletinA Boston-based lender has agreed to provide a $20 million line of credit to Liberty House after a federal bankruptcy judge ordered changes to initial terms of the deal.
Jerrold Guben, the Honolulu attorney for Fleet Retail Finance Inc., said this morning that the bank agreed last night to changes ordered yesterday by U.S. Bankruptcy Judge Lloyd King.
At a hearing at federal bankruptcy court in Honolulu, King approved the line of credit but struck several "overreaching" provisions of the credit agreement he said would constitute "priming" -- jumping ahead of other secured creditors waiting for repayment in the Chapter 11 case.
Fleet had stipulated first-lien priority on key Liberty House leases, including Ala Moana Center, Kahala Mall, downtown, Kaahumanu on Maui and Makalapua on the Big Island.
The judge also was chagrined by provisions he said would preempt the court, including a stipulation that the bankruptcy could not be closed without written approval of the lender.
"I have never authorized such a provision in the past," King said. "It is the court that has to run the court."
Guben said now that Fleet has agreed to the changes, Judge King must give final approval, which should happen either today or Monday.
Liberty House, which filed for reorganization bankruptcy on March 19, 1998, says its operations have stabilized but it needs the back-up credit to calm jittery vendors.
Under the financing plan, Fleet would provide Liberty House with a one-year, $20 million revolving line of credit for fees totaling $524,000.
An existing two-year, $50 million line of credit provided by DDJ Capital Management LLC and Canyon Capital Advisors LLC, is costing Liberty House $763,000 a year. That financing is due to expire Thursday.
Liberty House says it has never borrowed on the $50 million and sees no need to tap a new line of credit. But the credit will reassure vendors during the company's reorganization, the retailer says.
"The continued availability of a post-petition credit facility of some magnitude is critical for Liberty House to maintain the confidence of its vendors, who correctly or incorrectly perceive the availability of post-petition credit as a barometer of a debtor's financial condition," said Liberty House President John Monahan in a recent court filing.
Liberty House sought the lower credit line to save on fees.
King recently authorized the payment by Liberty House of $75,000 in fees to Fleet for preliminary work and legal fees associated with the credit financing.
