During the first day hearings on the Chapter 11 bankruptcy filing by Savannah-based Friedman’s Inc., attorneys were able to secure 25 days of financing for the nation’s third-largest jeweler, the Savannah Morning News reports.
Debtor in Possession (DIP) financing has not been secured by the jewelry chain to fund its restructuring, so it was vital to the company that their lenders agreed to allow them access to funding.
During the eight-hour hearing on Tuesday Friedman’s lenders agreed to allow the company access to its account until Feb. 12, the newspaper reports. The same lenders further agreed not to dishonor any checks, unless requested to do so by Friedman’s, the newspaper reports. In turn, Friedman’s must keep the balance in the account above $20 million.
Last Wednesday, the company’s senior lenders limited cash to a “discretionary basis” depriving Friedman’s of cash flow. The decision resulted in around $8 million worth of checks being dishonored, John “Jack” Wm Butler Jr., counsel for Friedman’s, reportedly said.
As a result, Friedman’s was rushed into a “turbulent Chapter 11 filing,” Butler, of Chicago-based Skadden Arps Slate Meagher & Flom LLP, reportedly said.
Butler is co-leader of the firm’s worldwide corporate restructuring practice, and has worked on the K-Mart, Enron, and Xerox restructuring cases.
Access to capital gives the company an opportunity to have inventory in place for Valentine’s Day, the jewelry retailer’s second biggest holiday after Christmas.
Friedman’s CEO and President Sam Cusano said that without the sales volumes of the big jewelry holidays, it would be very difficult for the company to make progress in emerging from Chapter 11.
The lenders’ decision to put the squeeze on cash flow resulted after Friedman’s said it failed to produce the kind of Christmas sales they had projected.
While no clear restructuring strategy is yet in place, Butler reportedly said the company plans to move swiftly.
“We need to finalize claims and get in and out [of Chapter 11] as fast as we can,” he reportedly said.
A target date of the first quarter of 2006 has been set, but Friedman’s will work on getting out even sooner if possible, he reportedly said.
The haste at which Friedman’s was rushed in bankruptcy filing is the reason for the lack of DIP financing, Cusano reportedly said. The company plans to present DIP financing options to the court Thursday.