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Liberty House emerged from bankruptcy today, ending a record-breaking legal saga that has kept the state's oldest retail chain mired in uncertainty for nearly three years.
It was the most expensive
bankruptcy case in Hawaii
history, with fees totaling
approximately $16 millionBy Tim Ruel and Rick Daysog
Star-Bulletin"The plan of reorganization is effective today," said Liberty House president John Monahan. "I signed the papers five minutes ago."
"It's been a very long three years and I am most thrilled for the company and all of its employees," said Monahan.
The total expense for the case, including legal and accounting fees and restructuring charges, is about $16 million as of today, Monahan said. That tally, which is likely to rise with last-minute bills, makes it the most expensive bankruptcy case in Hawaii history. The previous record was Hawaiian Airlines, which spent $5.4 million before emerging from Chapter 11 in 1994.
Since filing on March 19, 1998, Liberty House closed about 12 outlets, leaving it with 18 department stores and smaller shops. The company trimmed its work force by 1,300 jobs and now has a total of 3,000 employees.
Liberty House bankruptcy at a glance
Filed: Chapter 11 reorganization on March 19, 1998
There will be no further layoffs or closures as a result of the just-completed reorganization, Monahan said.
The company's nearly 2,000 creditors will begin receiving long-awaited payments within 30 days.
Liberty House also announced that mainland lender Fleet Retail Finance has agreed to provide the retailer with $40 million in working capital financing.
"It's just there for working capital, " said Monahan. The company has not yet tapped the revolving line of credit. "It's there in case the company needs capital," he said.
For Liberty House's vendors, today's announcement means the long wait is over.
Chuck Choi, attorney for the unsecured creditors committee, said the vendors that are owed less than $5,000 will be paid in full plus interest next month. Larger creditors will get about 90 percent of what they are owed over a set period.
"This means that the unsecured creditors who have had to wait three years will finally be paid," Choi said. "It also means that Liberty House is on much stronger financial footing with its new owners."
The closing of the case was made possible when U.S. Bankruptcy Judge Lloyd King in approved a settlement in January between the Internal Revenue Service and Liberty House. The agreement finalized a battle over the retailer's back taxes that had stalled the Chapter 11 case.
Under the settlement, Liberty House's maximum liability for the tax claim is capped at $14 million. The IRS had been seeking an estimated $35 million in taxes from a group of companies that used to include Liberty House. Without the IRS issue resolved, the case could have dragged on even longer. The IRS had wanted to take another year to audit the taxes.
The case ran into further delays because of a dispute over the value of Liberty House between its former owner, JMB Realty Corp. of Chicago, and the company's creditors. The two sides were represented by competing boards of directors of Liberty House, which added heavily to the bankruptcy's expense, according to the court-appointed auditor.
During bankruptcy confirmation hearings in January, JMB and the creditors settled their arguments. JMB agreed to a reorganization plan very similar to one proposed by a committee of creditors in conjunction with the retailer's lenders. Under the plan, JMB takes a $13.6 million payout in cash and notes.
The company's new majority owners are two private venture captail firms, Oaktree Capital Management LLC of Los Angeles and DDJ Capital Management LLC of Wellesley, Mass. They will control 80 percent of the company.
The new board members include Patricia Wachtell, with Oaktree Capital; Bob Hockett, from DDJ; Frank Arthofer, a retired Nestle executive; Monahan; and local developer Duncan MacNaughton. No chairperson has been named yet.
"With the reorganization behind us, we now look forward to building on the successes that Liberty House has achieved over the past three years," Monahan said.
The company reported a 2.3 percent increase in profits for 2000, up to $8.9 million from $8.7 million in 1999.
Liberty House, founded in Hawaii as H. Hackfeld & Co. in 1849, is Hawaii's oldest and largest retail chain.
Liberty House's emergence from bankruptcy comes at a time when Hawaii's economy is bouncing back from its 1990s doldrums.
What's more, the new company will not be saddled with the same debts that hurt the retailer prior to its 1998 bankruptcy filing, said local marketing analyst Marty Plotnick.
However, it will have to contend with the new retail environment. Plotnick said Liberty House faces more competition today than it did three years ago.
DFS Hawaii recently opened its $65 million Galleria complex in Waikiki, while Ala Moana Center is refocusing its retail mix, he said.
"Their first year out of bankruptcy will tell whether or not they are viable," said Plotnick, president of Creative Resources Inc.
"I wish them luck in the new competitive environment."
