Finlay … Finally

OK, there is a lot going on today, and we are also switching to a new web platform. But I wanted to get up some information about Finlay’s Chapter 11. First, here are the top Unsecured trade creditors (all of whom are listed as “partially secured.”) 

Vaishali Diamond Corp. $2,716,596.27
Royal Jewelry Mfg Inc. $2,008,333.1
Richline Group $1,807,350.67
B H Multi Com Corp. $1,255,783.96
Le Vian Corp. $1,203,309.82
Citizen Watch Co of America $1,098,067.82
Weindling International $755,992.35
Bulova Corp $728,203.51
MJJ $690,998.36
Cybel Trading Corp $604,443.24
Diamond Source Industries $578,497.22
Uni-Creation $475,807.71
Tacori $474,671.84
Julius Klein $442,516.20

I think it’s safe to say the company’s future looks iffy. The papers note that “Stalking Horse Bidder” Gordon Brothers “will serve as agent for the liquidation of substantially all of the Debtors’ remaining assets, subject to higher and better offers received at an auction. The proposed bidding procedures will allow the Debtors to consider any and all bids for any of their assets, whether such bids contemplate operating the subject assets as a going concern or liquidating them pursuant to an agency agreement.”

Here is the company’s chronicle of “Events leading to the Chapter 11 filing.” It starts by noting all the problems in its leased division: Macy’s took over some of its departments, Lord and Taylor decided to go with Fortnoff (and later scuttled that plan), Belks began to run its own departments, and Gottschalks went Chapter 11 …

All of these closings left the Debtors with a higher percentage of smaller departments, which tend to be less profitable than the larger departments. Given the leverage required to operate Finlay’s business, the loss of these significant revenue streams has negatively impacted the Debtors financial flexibility.

In addition, several factors during early 2008 impacted the Debtors’ ability to continue their historical credit terms with vendors, including the delisting of the Debtors’common stock from NASDAQ, the downgrade of Finlay Jewelry’s credit rating on the Senior Notes, and the many recent bankruptcies in the retail and jewelry industries, including Whitehall Jewelers, Inc., Friedman’s Inc., Ultra Stores, Inc., Shane Co., and Samuels Jewelers, Inc. As a result, as the Debtors entered the third and fourth quarters of 2008, they were forced to accelerate payments to certain vendors and significantly reduce historical credit terms. This added additional pressure to the Debtors’ liquidity levels.

The current banking and credit crisis, the high unemployment rate, continued home foreclosures, the rising cost of basic necessities, and the reality that the United States is in the midst of a recession created a highly challenging retail environment during 2008 and, in particular, in the third quarter and fourth quarter periods of 2008. Since the Debtors’ business is highly seasonal, with a significant portion of sales and income from operations generated during the fourth quarter of each year, which includes the year-end holiday season, these conditions have significantly impacted the Debtors’ liquidity position and operating performance. The challenging retail environment prompted the Debtors’ Prepetition Senior Lenders to dramatically reduce the borrowing availability under their prepetition credit facility in January and again in February of 2009.

It is getting a little annoying watching all these companies blame the economy for their failings when it was obvious Finlay was a screwed-up company well before the economy went sour. Though, in fairness, it is amazing the company has lasted this long. Good luck to all Finlay employees and vendors.

JCK News Director