As expected, troubled Savannah, Ga.-based retailer Friedman’s, the nation’s third-largest jewelry chain, went into Chapter 11 after the company missed its holiday sales targets and main lenders curtailed its funding.
Friedman’s said the filing should provide it with the breathing room necessary to complete financial restructuring initiatives it embarked upon more than five months ago.
The bankruptcy filing did not include the customary debtor-in-possession financing. At press time, however, the company had received up to $150 million in financing from a group of lenders led by Citicorp USA. Friedman’s received interim court approval to borrow up to $40 million of the financing. This was to allow the jeweler to remain open through Valentine’s Day on Feb 14. The rest of the financing is intended to carry it through the rest of the filing.
Chief executive officer Sam Cusano said the filing will allow the retailer “to effectively put the challenges of the past behind it.… Chapter 11 is a tool that will allow us to build upon our core strengths so that we can emerge as a stronger, financially viable business.” The company has given itself a target date of the first quarter of 2006 to emerge from Chapter 11.
Its voluntary bankruptcy petition lists total assets of $395.8 million and total debts of $215.7 million.
The filing was caused when the company’s lenders decided not to amend financial covenants in the company’s credit facility. The amendments were necessitated, Friedman’s says, after it didn’t meet December 2004 sales targets, because of delayed inventory shipments and tougher credit policies.
Most of the publicity around Friedman’s of late has centered on its legal woes (see “Attorneys General Sue Friedman’s Over Insurance,” JCK, February 2005, p. 36)—including investigations by three attorneys general into old credit policies and an SEC probe into financial irregularities. But a company statement noted several other problems, including “continued disappointing results, a high debt structure resulting from its explosive growth beginning in the mid-1990s and continuing over recent years, [and] higher-than-anticipated default rates on the company’s customized customer credit programs.” It also noted the “cloud of uncertainty” regarding the litigation that has hampered its ability to secure alternate financing sources.
It’s too early to tell whether any of the company’s 652 stores will be closed, says spokeswoman Maya Pagoda.
According to the bankruptcy papers, the chain’s top creditors are: M. Fabrikant & Sons, $17 million; Rosy Blue, $10.7 million; Design Works, $7.1 million; C. Mahendra Jewels, $6.2 million; Media Solutions, $5 million; Sumit Diamond Corp., $4.3 million; Alston and Bird, $2.5 million; Bulova Corp. $2.1 million; Goldstar Jewelry, $2 million; and Samuel Aaron, $2 million.