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Lloyd & Taylor parent to acquire Fortunoff

Heath E. Combs -- Casual Living, March 1, 2008

Home furnishings and jewelry specialty chain Fortunoff has filed for Chapter 11 bankruptcy protection and has agreed to be purchased by the parent company of department store chain Lord & Taylor.

The potential purchaser, an affiliate of NRDC Equity Partners called H Acquisition, has said it planned to bid on Fortunoff through a bankruptcy court-supervised sale.

Fortunoff began negotiations with NRDC Equity in September, but a merger agreement stalled mid-January when NRDC backed out.

In a bankruptcy court document, Fortunoff said it doesn't have the necessary liquidity to operate outside of bankruptcy. Under reorganization, the retailer said it plans to reject underperforming and unprofitable leases and will realign its financial structure, its filing said.

NRDC said in a press release at press time that it would invest $100 million into existing and additional stores and has made a $10 million letter of credit available to the retailer to purchase inventory.

“Fortunoff is a valuable brand with great potential for continued growth,” Richard Baker, chairman of Lord & Taylor and CEO of NRDC Equity Partners, said in a statement. “We look forward to working with Fortunoff vendors and employees to ensure that customers receive the same quality service and merchandise that are the hallmarks of the Fortunoff shopping experience.”

The company's largest unsecured creditor is Agio, which is owed $5.7 million.

Fortunoff, which filed for bankruptcy protection in U.S. Bankruptcy Court for the Southern District of New York in Manhattan, listed assets of $272.6 million and liabilities of $305.8 million.

Some existing lenders agreed to provide debtor-in-possession financing that will be used to run the business during the bankruptcy process, pending the sale.

Net sales at Fortunoff have fallen by $40 million since 2004 to an estimated $442.9 million in 2007. The company said it posted losses before interest, taxes, depreciation and amortization of $8.2 million in 2005 and $7.3 million in 2006, and forecasted a loss of $24.8 million in 2007.

The company's filing said its performance also suffered because of the cost of opening and operating new full-line stores, and interest expenses to service loans. It also cited competition from other big department stores, and said its margins eroded because of increased discounting and marketing spending.

The company also cited lease expenses. It gave an example of a 180,000-sq. ft. store in White Plains, N.Y., that costs $9 million a year to occupy and since 2003 has continuously operated at a loss.

The acquisition would require court approval, and is expected to close this month. All 23 of Fortunoff's stores in Pennsylvania, Connecticut, New York, New Jersey and its corporate headquarters will remain open during the Chapter 11 process, the company said. Fortunoff employs about 2,400 people.

Fortunoff was bought from family interests in 2004 by private equity firms Trimaran Partners and Kier Group. NRDC Equity Partners is a joint venture of National Realty & Development Corp. and Apollo Real Estate Advisors.

Its most recent transaction was the acquisition of Lord & Taylor from Federated Department Stores in 2006.



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