 Timeline: Retailer's court ordeal began in early 1998
By Andrew Gomes
Advertiser Staff Writer
Liberty House formally emerged from bankruptcy yesterday with new owners, about three weeks short of what would have been the kama‘aina retailer’s third anniversary in court.
The long-awaited event officially implements the reorganization plan confirmed by U.S. Bankruptcy Court Judge Lloyd King in January, and means Hawai‘i’s oldest and largest department store now is free of control by its former parent company JMB Realty Corp. of Chicago, dueling boards of directors and most of its debt.
"Liberty House and its 3,000 employees are very gratified to see the reorganization process conclude," John Monahan, Liberty House president, said yesterday. "The (confirmed) plan of reorganization ended the bankruptcy for all intents and purposes, but until it goes effective you’re never quite sure."
In the next 30 days, about 2,000 unsecured creditors, mainly vendors, will be paid, and the new owners — primarily two private Mainland investment firms — are being issued $130 million in stock.
Monahan said yesterday’s implementation of the plan permits Liberty House to move ahead in the fast-changing business of department store retailing.
"With the reorganization behind us, we now look forward to building on the successes that Liberty House has achieved over the past three years," he said.
Monahan has yet to meet with new board members, and discuss the retailer’s business plan, but he is eager to get on with business outside Chapter 11.
During the case, Liberty House was besieged by dueling boards of directors, a perceived hostile takeover by Ala Moana Center owner General Growth Properties Inc., plans by old owner JMB Realty Corp. of Chicago to keep the retailer laden with debt, and Internal Revenue Service tax claims totaling about $138 million. Each instance threatened Liberty House’s chances for survival.
Yesterday all that was officially put behind the more than 150-year-old retailer as the reorganization plan was put into effect. The nearly three-year proceeding was one of Hawai‘i’s costliest bankruptcies, with costs associated with the case reaching $16 million.
Now, one of the first things on the schedule for the restructured retailer will be a celebration tomorrow with company executives fanning out to individual stores to thank staff.
In the next 30 days, cash payments totaling $24 million will be distributed to creditors with undisputed pre-petition claims. The money will come from cash the retailer has on hand. Another $20 million in debt instruments, such as notes, also are being issued.
Under the plan, about 2,000 unsecured creditors, mainly vendors, will be paid 40 percent in cash and 50 percent in notes. Creditors with claims of less than $5,000 are being paid 100 percent in cash plus interest. JMB and an affiliated company will receive about $12.8 million in a mix of cash and notes for claims totaling $21.9 million.
New owners of Liberty House, primarily private investment firms Oaktree Capital Management LLC of Los Angeles and DDJ Capital Management LLC of Wellesley, Mass., are being issued $130 million in stock.
A five-member board consisting of Monahan, local real estate developer Duncan MacNaughton, Nestle Chocolate & Confections President Frank Arthofer and two executives from the retailer’s new owners have assumed control of the company.
Implementation of the plan allows Liberty House to move forward and take the fast-changing business of department store retailing head on, unrestrained by bankruptcy court approvals that often got stuck in arguments between management, old owners JMB Realty Corp. and other interested parties to the case.
"In this business you change," Monahan said. "The minute you stand pat is when you get boring and the customer loses interest."
No new stores are planned for Liberty House, which pared its number of outlets from 11 department stores and 30 resort and specialty shops to 12 department stores and eight resort shops during reorganization. But Monahan said the company will be coming out with new merchandise.
To ensure the company’s financial position, Liberty House has secured a $40 million, three-year line of credit with Boston-based Fleet Retail Finance. The credit facility replaces a $20 million, one-year line of debtor-in-possession financing Fleet had been providing.
Monahan said Liberty House never borrowed on the one-year line or on two earlier lines of credit provided during bankruptcy, and has no intention of borrowing extensively on the new credit facility.
But he said sometimes there are needs for extra short-term cash like the period leading up to Christmas when the retailer stocks up on inventory. Monahan added that the line also provides vendors additional confidence about Liberty House’s ability to pay its bills.
Liberty House reported a net profit, excluding restructuring expenses, of nearly $9 million in each of the past two years. Excluding interest, taxes, depreciation, amortization, reorganization fees and extraordinary expenses — considered a more accurate measure of a company’s health — earnings were about $25 million in the past two years.
Bankruptcy reorganization expenses total about $16 million. An estimated $35 million Internal Revenue Service tax claim capped by the court at $14 million is pending, but Liberty House attorneys say the retailer likely will owe nothing.
Retailer's court ordeal began in early 1998
1998
March 19: Liberty House files for bankruptcy protection, listing assets of $284.2 million and liabilities of $248.4 million.
July-August: Home outlet stores and five Penthouse stores closed; Guam operations reduced.
December: Legal fees and other costs top $2 million in the case.
1999
March: Deadline for reorganization plan extended as dueling parties try to craft a joint deal.
May: In a development that would slow proceedings for more than a year, the IRS files claim in the case for $103 million in taxes and $35 million in interest.
2000
February: Liberty House posts 1999 profits of $11 million, triple the previous year.
May: Liberty House parent JMB Realty and the IRS reach partial settlement of the tax dispute.
August: Revised reorganization plans filed.
September: General Growth, owner of Ala Moana Shopping Center, leaps into the bankruptcy case, offering to buy the department store company for $195 million. Two days later it withdraws its bid.
October: General Growth emerges in another bid for Liberty House, allying itself with JMB Realty in a bid to win control.
December: General Growth abandons its bid.
2001
January: The retailer’s parent company and major creditors reach a deal
Jan. 25: Bankruptcy Judge Lloyd King confirms a plan of reorganization.
March 1: Liberty House officially emerges from bankruptcy.
Andrew Gomes can be reached by phone at 525-8065, or by e-mail at agomes@honoluluadvertiser.com
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