DFS repays $100 million to owner
By Sean Hao
Advertiser Staff Writer
Airport duty-free contractor DFS Group disclosed yesterday that it repaid $100 million in loans to part-owner LVMH Moet Hennesy Louis Vuitton last year when it was falling further behind on its rent to the state.
DFS has been paying less than full rent, citing a drop in Japanese tourist travel, but it still owes the state about $40 million.
The company warned yesterday that without additional rent concessions it would have no choice but to close its operations or seek court relief from creditors. Options include bankruptcy, litigation or other legal remedy.
The company, which employs 1,200 full- and part-time workers in Hawai'i, is lobbying the Legislature for more concessions from the terms of its rent agreement, which expires in 2006.
Detailed financial information on DFS' operations, including the $100 million repayment, was previously disclosed to state administration officials last August, said Sharon Weiner, a group vice president for DFS. It was not shared with the public or the Legislature at that time because of a confidentiality agreement, she said.
The timing of yesterday's disclosure could complicate DFS' efforts to seek legislative relief from its airport rent contract. Lawmakers are considering a bill that would reduce the rent for 25 to 30 airport concessionaires if sales fall below certain levels.
"That's a lot of money to pay back an owner," said Sen. Willie Espero, D-20th ('Ewa Beach, Waipahu). "It would make us take a good look at the legislation that's going through right now."
Espero is co-sponsor of Senate Bill 44, which is before a House committee. He said he wants to know more about the loan repayment and other DFS financial details. Key among those questions is just how much discretion DFS had over the amount and timing of the loan repayment.
"If you had that $100 million to pay back, could that monetary amount paid back have been less than $100 million and could the parent company have agreed to provide more assistance to DFS?" Espero asked. "Or was this a transfer of funds because someone was scared of something?"
DFS Hawai'i is part of the San Francisco-based DFS Group. Overall, DFS Group still owes $350 million to LVMH and has total debts of more than $500 million, Weiner said. Paris-based LVMH owns 62 percent of DFS Group.
Citing its financial state, DFS has made partial or late payments to other creditors as well, Weiner added.
She said last year's $100 million payment was required under terms of a credit agreement between DFS Group and LVMH, which was DFS' only available avenue for needed capital, she said.
DFS is required to pay minimum annual rent to the state of about $60 million under a contract signed in 2001. However, the company has been paying roughly half that since June, when former Gov. Ben Cayetano vetoed a bill that would have granted rent relief to DFS and other airport concessionaires.
Weiner said DFS is willing to set up a payment plan to repay at least some of the delinquent rent if there's some assurance that its future rent will be substantially lower.
"We're waiting to hear from them," Weiner said. "The ball is in their court."
She said the rent concessions are needed because DFS Group is just breaking even. That's mainly because of a total of $48 million in rent relief negotiated for operations in Hawai'i, the Mainland and Singapore after Sept. 11, rather than an increase in business, Weiner said.
Without additional relief, the 150-store DFS Group chain would lose tens of millions of dollars each year, she said. The DFS-Hawai'i division contributes the most in sales to DFS Group.
Rod Haraga, director for the state Department of Transportation, said he was unaware of the debt repayment by DFS, although it was unlikely to deter a resumption of talks with the company. The department oversees airport contracts.
"That's new information to me," Haraga said. "It sounds like water under the bridge."
Lingle administration officials now are developing their strategy for dealing with DFS, he said.
"I don't think it's in anyone's interest to take a hard line on this," Haraga said.
Earlier this week, Gov. Linda Lingle said the state appears headed toward litigation with DFS-Hawai'i.
"I've told them they had to pay up everything they owed through the end of the year before we would even begin any discussion," Lingle said. "Then they didn't want to talk anymore."
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
