Family regains control of department stores

Associated Press

HARRISBURG, Pa. — Pennsylvania is offering $35 million in state-guaranteed federal loans to help regional department store chain Boscov’s exit bankruptcy, Gov. Ed Rendell said Thursday.

The loans would be financed through a U.S. Department of Housing and Urban Development program, although Boscov’s still needs to secure some private loans before it can get the money.

Reading-based Boscov’s filed for Chapter 11 protection in August and announced that it would close 10 of its 49 stores. In Pennsylvania, it operates 24 stores and employs more than 5,000 people.

"We took this step because of the extraordinary reach that Boscov’s has in Pennsylvania," Rendell said during a news conference.

Company officials did not immediately return a telephone call seeking comment Thursday.

Under the federal loan program, local governments can guarantee loans for economic development projects with federal community development block grants.

Any Boscov’s real estate and inventory that is free of liens would serve as collateral for the loans, and the administration believes the value of those assets is sufficient to cover any remaining debt if the chain should default, Rendell said.

But even in a worst-case scenario, the loans carry a low risk because the state has a $24 million surplus in unspent grant money, Rendell said. The state receives anywhere from $9 million to $13 million annually in community development block grants.

If the state were responsible for repaying any of the debt, it would forgo at least a portion of its grant money from HUD, Rendell said.

Boscov’s will not have access to the federal loans if it is unable to secure bridge loans that are part of more than $300 million in financing the chain will need to exit bankruptcy, Rendell said.

The company is seeking a Delaware bankruptcy court’s approval of a deal that would allow the firm to be bought by the families of Albert Boscov and Edwin Lakin. Boscov is the privately held company’s former chairman and son of the company’s founder. Lakin is a former president and co-owner, and the founder’s son-in-law.

A final sale order remains pending; another court hearing is scheduled for Friday.

Boscov is also a prominent political donor, contributing more than $130,000 to Rendell alone since 2001, according to state campaign finance records.

But Rendell said the state’s pledge of financial help was "in no way, shape or form a political payback." He noted that he would not have made that pledge without recommendations from top advisers.

Boscov and Lakin made a last-minute bid for the company, which terminated an earlier agreement to sell its assets to Versa Capital Management, a Philadelphia-based private equity firm.

Bankrupt chain eyes ownership by former executives

Associated Press

WILMINGTON — The bankruptcy sale of regional department store chain Boscov’s to two former executives moved a step closer to fruition following a court hearing on Tuesday

While several issues surrounding the sale were resolved Tuesday, a final sale order remains pending with another hearing scheduled for Friday.

The proposed agreement calls for Boscov’s to be bought by the families of Albert Boscov and Edwin Lakin, the son and the son-in-law of the privately held company’s founder. The deal is valued at between $275 million and $300 million.

Boscov is former chairman of the Reading, Pa.-based company. Lakin is a former president and co-owner.

Boscov’s filed for Chapter 11 protection in August and said it would close 10 of its 49 stores.

The two men made a last-minute bid for the company, which terminated an earlier agreement to sell its assets to Versa Capital Management, a Philadelphia-based private equity firm, for $11 million and the assumption of debts.

Brad Erens, an attorney representing Boscov’s, told judge Kevin Gross on Tuesday that final details on financing and the payment of administrative claims must still be nailed down.

"We have a few loose ends to tie up, but we are very optimistic that we will get there,’’ said Claudia Springer, an attorney representing Boscov, Lakin and other shareholders.

During a break in the hearing, Albert Boscov said he hopes the deal can be completed soon so that stores can be stocked and ready for holiday shoppers.

"We don’t have adequate stock right now,’’ he said, adding that every postponement in the case raises uncertainty in the minds of vendors and leads to interruptions in deliveries.

At the same time, Boscov said, the loyalty of Boscov’s customers has been "amazing.’’

"We’re going to be fine,’’ he asserted. "We’ve got to get out of this. We need to get merchandise.’’

Several objections to the sale were filed by various parties, but most were resolved before Tuesday’s hearing.

Gross did hear arguments on an objection by HSBC Bank Nevada, which administers Boscov’s credit card program and is seeking to renegotiate its contract rather than allow the buyers to take it over. The judge overruled HSBC’s objection and HSBC attorney Gregory Schwed said he planned to appeal.

Erens accused HSBC of trying to use the bankruptcy case to get a better deal in its credit card agreement with Boscov’s.

"This is probably the most valuable contract of the company,’’ he said.

According to Schwed, Boscov’s customers used their private label credit cards to buy $525 million of goods in 2007, representing more than 40 percent of Boscov’s overall sales.

Schwed said his client has offered to consider a modification of the existing contract but has not received a response.

"We freely concede that the terms are not what we would like,’’ said Schwed, who nevertheless denied trying to take advantage of the bankruptcy case to force a better deal.

Meanwhile, Versa Capital Management is asserting that it is entitled to a $4 million breakup fee because its bid was rejected.

Anup Sathy, an attorney for Versa, said his client did a lot of the legwork before members of the Boscov family submitted their bid.

"A lot of the documents looked very familiar to us,’’ he said, adding that Versa spent a lot of time and millions of dollars trying to fashion a deal, even though it knew the family was very interested in keeping the business.

"When the seller is a bidder, then that adds a whole new level of concern for other bidders,’’ Sathy said, adding that Versa’s $4 million claim is appropriate.

Attorneys for Boscov’s and its unsecured creditors said Versa is not entitled to a breakup fee because it was not able to obtain financing and wanted to push back the closing until January, even though it had asserted that closing before the lucrative holiday shopping period was critical.

Gross indicated that he would schedule an evidentiary hearing later to consider Versa’s claim.

Staff and wire reports

READING, Pa. — Boscov’s may stay in the family.

Boscov’s Department Store LLC announced Tuesday that it has agreed to sell substantially all its assets to a group led by Albert Boscov and Edwin Lakin, members of the family that founded the retail chain in 1911.

The Pennsylvania-based company operates stores in Dover, Christiana and Wilmington. Its Dover store, opened in 1982, was its first outside its home state. Boscov’s has entered the Maryland, New Jersey and New York markets since then.

The company filed for bankruptcy protection in August, announcing at the same time that it would close 10 of its 49 stores. The Delaware stores were unaffected. A company spokesman said then that its Dover location was one of its most successful.

More than a dozen retail chains have gone bankrupt this year.

In the past two weeks, Value City has announced it will close all of its stores, one of which is in Dover, and Circuit City said it will close 155 of its more than 700 stores but will keep open its locations in Dover, Christiana and Wilmington.

Boscov’s also announced Tuesday that it has formally terminated a previously announced sales agreement with Versa Capital Management Inc. Versa moved fast to buy the company following the bankruptcy filing, but creditors said then that they expected Versa’s offers to spark more-generous offers by other potential buyers.

Boscov’s reported that the family members planning the acquisition "have had positive discussions regarding funding for the transaction and believe that they will soon be able to conclude a formal financing agreement."

The company indicated the sale may be complete by the end of this month.

Bankruptcy judge approves sale plan for Boscov’s chain

Creditors support efforts

Philadelphia Inquirer

The bidding war for the country’s oldest family-owned department store has begun. Or, shall we say, the first salvo has been fired.

And indications yesterday were that the family that founded the 97-year-old Boscov’s department store chain in Reading — only to lose it to Bankruptcy Court last month — may be readying to join the fray with its own bid to buy back the beloved company.

Creditors were cautiously optimistic about the news Wednesday that Boscov’s Department Store L.L.C. had asked the court to name Versa Capital Management Inc., of Philadelphia, the lead bidder with an $11 million cash offer in an overall deal valued at more than $225 million.

Versa’s bid includes assuming about $184 million in Boscov’s debt and payment of a number of fees. But the Philadelphia equity firm’s $11 million in cash would give vendors only about 12.2 cents on the dollar for the $90 million they were owed when Boscov’s declared bankruptcy Aug. 4.

That is partly the reason at least one creditor was intrigued by the buzz that Boscov family members were preparing their own offer to buy back the 49-store chain, which is being shrunk through going-out-of-business sales to 39 stores by mid-October, as part of a hoped-for reorganization plan.

"We’ve heard that the family’s very interested in maintaining control," said Warren C. Gerber Jr., financial-services manager for New York-based Phillips-Van Heusen Corp., which was owed $1.3 million when Boscov’s declared bankruptcy.

Gerber and others representing Boscov’s largest creditors said there was hope that Versa’s lead bid would provoke more generous offers between now and the Oct. 10 bid deadline. Boscov’s has asked to schedule the auction for Oct. 13.

The auction process was initiated Wednesday when Boscov’s asked the court to name Versa its lead bidder, or "stalking horse," to get things going — a standard procedure in bankruptcy cases. Negotiations with Versa had been ongoing for at least six weeks.

Like other creditors balancing the desire to get paid against the alternative — the fear that Boscov’s would disappear through liquidation — Gerber said his company supported the family’s efforts to keep the chain running.

Gerber, whose company sells Arrow, Geoffrey Beene and Calvin Klein apparel, said it was too soon to know how Boscov and Lakin family members might structure a deal. He said that anything could happen between now and mid-October.

"You don’t know what sort of alliances might take place behind the scenes," Gerber said.

Versa managing partner Greg Segall said in a statement that Boscov’s could be profitable. "We look forward to working with management to create a stronger, more competitive company," he said.

And while creditors were not ecstatic over Versa’s offer, they were hopeful it could entice others to bid on the chain, whose remaining 39 stores generate $1 billion in annual sales.

"It gives us a baseline," Gerber said of Versa’s bid. "And now going forward, obviously, somebody has to do better than that."

Boscov’s chief executive officer Ken Lakin, whose father, Ed Lakin, and uncle, Al Boscov, ran the company until retiring with lucrative buyouts in January 2006, declined to comment about his family’s plans, if any.

He referred to accounts of his family’s preparing a potential bid as "speculation."

Lakin said he believed that Versa’s offer, however, was a positive development in bankruptcy proceedings that the family entered into with great reluctance.

"It’s a good thing for Boscov’s anytime you have an investor who thinks your company has worth and value — and value down the road," Lakin said.

Since filing for bankruptcy, Lakin has said the family hoped to emerge from the proceedings healthier and able to continue to operate, rather than being sold in pieces to satisfy debts.

This view is shared, to some degree, by creditors, who are balancing the value of getting paid more up front by a liquidator against the long-term loss of a big client, should Boscov’s be dissolved, said Anthony J. Pacchia, senior managing director and unit holder of Traxi L.L.C., a New York financial-advisory firm.

Pacchia is working with the seven-member bankruptcy committee representing unsecured creditors — a list that includes Inquirer owner Philadelphia Newspapers L.L.C.

Pacchia said creditors were hoping the auction would draw higher bids than Versa’s $11 million cash.

Dover Mall location stayed open during August downsizing

Delaware State News

DOVER — Regional department store chain Boscov’s, which has a store in Dover Mall, is seeking approval of a Delaware bankruptcy court for a possible buyout, but it is pressing for a speedy purchase in time for the holiday shopping season.

Philadelphia-based Versa Capital Management has emerged as the lead bidder for Reading, Pa.-based Boscov’s, which filed for Chapter 11 protection in August and announced that it would close 10 of its 49 stores.

"The downward trend in retail performance and the constriction in available credit have limited the debtor’s ability to acquire goods," court filings stated.

According to papers filed with the court Wednesday, Versa has offered to pay $11 million in cash and assume Boscov’s debt. The lead bidder on a bankrupt company’s assets, also known as the "stalking horse," is chosen by the company to make the first offer so that a minimum price is set.

Attorneys for Boscov’s are asking for a hearing next week to approve the proposed bid procedures and schedule an October auction or sale date.

The court filings indicate that Versa wants to operate the department store chain as a going concern, and that Boscov’s senior managers will remain involved with the business.

But attorneys for Boscov’s say any sale must be closed before the upcoming holiday season, the most important period of the year for the retailer.

"The debtors therefore believe that their failure to close a transaction by the end of October would undermine their ability to avoid a liquidation," court documents state.

"(A) sale on the time frame proposed in the bid procedures not only helps ensure that the value of the estates is maximized, but also helps ensure the preservation of approximately 9,000 jobs in the mid-Atlantic region."

The court filing asks that the auction date be set for Oct. 13 and a sale hearing be set for Oct. 15.

None of the three Delaware stores — in Dover, Wilmington and Christiana — were targeted in the mass closure announced last month.

Boscov’s executives said at the time that the Dover Mall location, which in 1982 was the first Boscov’s to open outside Pennsylvania, was one of the company’s strongest-performing stores.

The Dover Mall Boscov’s, which employs about 150 people, filled an anchor slot at the under-construction mall when another company backed out.

The store has been an integral part of the local community, allowing nonprofit organizations to use its upstairs auditorium. The room often is the site of candidate forums during election years.

Founded in 1911, Boscov’s describes itself as the largest family-owned, full-service U.S. department store chain, with 9,500 employees and 39 locations in Pennsylvania, Delaware, Maryland, New Jersey and New York.

The company is closing five stores in Pennsylvania, three in Maryland, one in New Jersey and the lone Virginia location in Danville.