Friedman’s Inc. said Wednesday that it has emerged from Chapter 11 as private company. The Savannah-retailer’s reorganization plan became effective on Dec. 9, marking its emergence from bankruptcy protection less than a year after filing on Jan. 14.
The retailer also closed on its $125 million exit financing facility provided by CIT Group, Inc., which eliminated or refinanced most of its debt. The financial package has a five-year term and will be used to fund payments, for ongoing working capital needs, and for general corporate purposes, Friedman’s said.
Consistent with the plan confirmed by the U.S. Bankruptcy Court for the Southern District of Georgia, Savannah, on Nov. 23, Friedman’s outstanding common stock has been cancelled. Harbert Distressed Investment Master Fund, Ltd., which invests in struggling companies, is a major owner of the restructured company. Harbert invested significant amounts into Friedman’s while the company was in Chapter 11, Friedman’s said. In exchange for the conversion of all of Harbert’s Chapter 11 claims and other interests in Friedman’s and an additional $25 million incremental equity investment, Harbert received substantially all of the capital stock of reorganized company.
“Since commencing our voluntary reorganization earlier this year, we have successfully restructured our financial position,” said Sam Cusano, Friedman’s chief executive officer. “Through this process, we have effectively put many challenges of our past behind us, permitting the company to emerge from Chapter 11 with a significantly less leveraged balance sheet, cash to fund operations, and an improved operational structure.”
Cusano added, “Today, Friedman’s is a stronger, more competitive company. … With the completion of our Chapter 11, we are looking forward to a successful holiday season.”
The company filed for bankruptcy following charges of fraud by the U.S. Securities and Exchange Commission and the U.S. Attorney’s Office for the Eastern District of New York. The company’s later announced that its audited financial statements for 2001 and 2002 were incorrect.
Friedman’s settled its case with the U.S. Attorney’s Office by agreeing to pay $2 million to the United States Postal Inspection Service Consumer Fraud Fund to settle support fraud prevention and consumer education initiatives, and to make certain reforms to its corporate governance and financial accounting controls.
Under the terms of the SEC agreement, no monetary fines will be imposed on Friedman’s, but it has consented to a permanent injunction against future violations of the antifraud, reporting, books and records, and internal control provisions of federal securities laws and other relief.
Under the reorganization plan, a trust of up to $8 million was established for the limited purpose of pursuing claims against various parties in connection with the events that led to the investigations of the company by the SEC and the EDNY. Any recoveries in connection with trust claims will be distributed to the company’s unsecured creditors.
The company’s existing senior management team will continue to lead the company and consist of, in addition to Cusano, Pam Romano president and chief operating officer, and Steve Moore, chief administrative officer and general counsel.