Fabrikant Goes Chapter 11

M. Fabrikant & Sons Inc. and its domestic subsidiary, Fabrikant-Leer International, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. The company’s foreign and domestic affiliates aren’t included.

In a statement, the family-owned and -operated company said Chapter 11 proceedings “currently provide the best opportunity to maximize the value of its assets and its business for all stakeholders.” It also said the company will “actively pursue a full range of strategic alternatives, including the sale or refinancing of the firm.”

Fabrikant will continue operating its business while in Chapter 11, and its facilities are expected to remain open on normal schedules. It said it plans to “continue to pay employee wages and benefits, honor customer fulfillment obligations and programs, and make uninterrupted payments to suppliers for goods and services.” The company has negotiated financing arrangements with its senior secured lenders, subject to court approval.

“We are in business every day,” said spokeswoman Susan Fabrikant Fortgang. “We are commited to service and delivery of our products.”

The company has $366.3 million in total liabilities, with total current assets listed as $225.8 million, court papers say.

The company cited numerous factors for its widely expected action, particularly the bankruptcies of two of its largest retail customers, Friedman’s and Crescent Jewelers, which it says led to “substantial write-offs, reduced sales and cash flow”; the financial restructuring of a third customer, Whitehall Jewelers; and a significant reduction in purchases by Wal-Mart as it sold excess inventory. It also cited “gold prices and diminished free cash flow.”

In the lead-up to the filing, many of Fabrikant’s divisions were sold. An Indian company, Tara Jewels, recently purchased some of the assets of Fabrikant-Leer and formed a new venture called Fabrikant Tara International, of which Tara owns 73 percent. Its Israeli sightholder division—formerly Fabrikant-Salant—is now owned entirely by Israeli company Salant, and Robert Lee Morris has been sold to Lester Friedlander, a former company officer.

The fate of its other divisions—including Simmons Jewelry Co. and Brilliant Trading (a venture with Israeli mogul Lev Leviev)—was uncertain at press time, and Fortgang had no comment.

Most of the company’s debt—$161.9 million—is owed to banks. Debts to third-party creditors total $36 million, and debts to non-debtor Fabrikant subsidiaries total $124 million.

Banks make up the top slots on the company’s list of unsecured creditors. ABN AMRO is the leading unsecured creditor, owed $13.5 million, followed by Antwerp Diamond Bank ($8.8 million) and Union Bank ($7.8 million). The top trade unsecured creditor is H. Dika and Co. ($5.6 million), followed by Blue Star ($5.5 million), which has commenced litigation against Fabrikant.

The company’s secured creditors include ABN AMRO ($44 million) and JPMorgan Chase ($35.8 million).

Fabrikant Leer lists its largest unsecured creditor as Vaishali Diamond Corp., which is owed $2 million.