 With finances in order, Liberty House looks to future
By Glenn Scott
Advertiser staff writer
For most of three years, the Liberty House bankruptcy proceedings occurred at a methodical, meticulous and often acrimonious pace, but the crucial moments came in a frenetic few days before the key court hearing.
The deal in concept went down in telephone calls between New York City and Chicago on Friday, Jan. 19. It was the last business day before competing parties were to assemble the following Monday in Honolulu for the start of the crucial U.S. Bankruptcy Court confirmation hearing with Judge Lloyd King.
By Monday, after principals and attorneys had invested four days and part of some nights in e-mail messages, conference calls and streams of faxed documents, the two sides had reached an agreement that eventually allowed Liberty House to emerge last week from its Chapter 11 case.
The next morning, a weary set of lawyers met at 6 a.m. at the downtown Honolulu law offices of Case Bigelow & Lombardi to exchange feedback on an amended reorganization plan that shifted control of Liberty House from previous owner JMB Realty Inc. to a coalition of investors and bankers who owned most of the company’s debt.
In court later that day, a relaxed Bruce Bennett, attorney for Liberty House, stood at a lectern in front of King. It was a spot where the articulate Bennett had often attacked the many technical issues of the case — including the flaws he found in competing proposals. This time he seemed relaxed, in a charcoal suit, his hand in a pocket, as he discussed details of the settlement.
"If I look tired," he told the judge, "it’s because an enormous amount of time was compressed into four days."
In a way, all that had occurred for almost three years — as two separate boards of directors vied for control through financing disagreements, tax-liability crises, and leasing options — had dissolved into that short but crucial period.
"I have a saying about cases," Bennett said in a later interview. "At some point in most large Chapter 11 cases — and this case qualified — there comes a time when peace starts to break out. It's very important that everyone is willing to seize that moment. I think you saw a very good example of that in this case."
Peace broke out in the Liberty House case, according to several people involved, at a predictable point. JMB’s bid last fall to partner with General Growth Properties, the asset-rich owner of the Ala Moana Shopping Center, had initially appeared promising, but the deal collapsed in early December, leaving JMB with no plan on the table and little momentum entering the confirmation hearing when the judge could rule for one plan over the other.
By the start of this year, creditors were lining up behind the reorganization plan that Bennett and associates had submitted on behalf of the lenders, a committee of creditors and the store’s senior management.
Time was running out. And as Liberty House President John Monahan later pointed out, the case never lacked for serious behind-the-scenes discussions between principals for the two competing parties, despite the hardline positions taken in court.
Finally, the key negotiators in New York City for the lenders — Judy Mencher and Robert Hockett for DDJ Capital Management LLC of Wellesley, Mass., and Patty Wachtell of Oaktree Capital Management LLC of Los Angeles — reached an agreement with JMB executives, including executive vice president Steve Plonsker. The compromise shifted control of the retailer, valued at $190 million, to the lenders, but gave JMB about $13 million in cash and notes for its claims.
"This is why cases get settled," Stephen Karotkin, an attorney for the lenders, later explained. "As the actual hearing date approaches, people on all sides of the issues look at the risks and the possible outcomes and they make decisions."
But the decision in concept wasn’t enough. The next step was to draft a precise memorandum of understanding and then reconstruct a final reorganization plan that reflected the compromise.
All that ate up the four days. Working from New York, Karotkin stayed at his desk until 3 a.m. coordinating with several other lawyers, including JMB attorney Daniel Murray in Chicago, Bennett in Los Angeles and Jay Indyke, a creditors’ committee attorney also in New York.
The group spent Saturday on the task as well. "The e-mails were crackling," said Indyke.
Meanwhile, the lawyers were leaving voice-mail messages on Judge King’s telephone informing him of their progress, so he would know what to expect.
Sunday, the New York lawyers decided to rendezvous in Bennett’s Los Angeles office on their way to Honolulu to finish drafting the new version of their plan. Monday they flew to Honolulu to meet with lawyers here associated with the case, including Tom Roesser for the lenders, Chuck Choi with creditors and Stephen Teves, who worked with Bennett, as did the late Bruce Bigelow.
After King ruled in favor of the compromise plan, the group was dining in the Pineapple Room at the flagship Liberty House at Ala Moana with virtually all of the disagreements behind them.
It was a triumph of sorts for all the parties that, despite the legal contentiousness, the store that had entered bankruptcy with almost $150 million of debt was still around at the end. It would emerge far leaner, with just $20 million of debt.
Bennett said he never doubted that Liberty House would survive the process.
"I thought the business looked like it was turning around right away," he said. "Particularly after Christmas 1999, it became abundantly clear the company was going to successfully reorganize. The only issue was how, not whether."
And the answer to "how" came quickly, resolved in a fast four days.
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