Bottom Of The 9Th -- But Frederick & Nelson Owner David Sabey Vows Game Isn't Over Yet
As ailing Frederick & Nelson strugggles to avoid layoffs and liquidation, its chief operating officer last night gave more bad news: the chain may not have cash to buy new merchandise next month.
The statement by David Taylor suggests that control of the chain has shifted to its principal lender, Citibank, which insists that owner David Sabey find a major investor by Feb. 19 or start liquidating the company. Sabey yesterday warned F&N's approximately 1,500 employees of possible layoffs starting March 16.
To attract capital, F&N must show it's a worthwhile investment. But without new merchandise F&N is likely to continue down a business spiral of increasingly empty shelves and fewer customers.
Taylor said he did not know how much money Citibank would provide.
"We haven't gotten to that point yet," he said during a brief interview.
Citibank has agreed to keep financing the chain under a plan that would "minimize expenses," according to a filing with U.S. Bankruptcy Court.
Unless investors are found by the February deadline, a liquidation agent to be approved by the court will begin selling assets, a process to be completed by June 1. The issue will be aired at a Jan. 29 hearing before Bankruptcy Court Judge Samuel Steiner.
It remains unclear how much money Sabey needs to raise from investors. One estimate puts it as high as $20 million. F&N has 2,450 creditors with claims totaling more than $179 million.
In a letter to employees yesterday, Sabey said the chances of coming up with additional capital were strong.
But he added that store executives were making contingency plans.
"I'll be straight with you: It's the bottom of the ninth inning," Sabey said in the letter. "But the game isn't over yet, and I'm the type that will keep doing everything in my power to see that we win."
Store officials also issued a formal WARN notice yesterday, alerting employees of potential layoffs and store closures should these efforts to obtain additional funding fail.
F&N asked the court yesterday to name as liquidation agent Paul Buxbaum, vice president of Buxbaum, Ginsberg & Associates of Encino, Calif. The company specializes in liquidation of retail inventories.
Frederick & Nelson had "reasonably successful" holiday sales, but its two biggest lenders insisted on ending a financing plan that was keeping the ailing chain afloat, according to a court filing yesterday.
Citibank and Meridian Trust, a group of lenders, told F&N that the financing plans "will not be extended under their existing terms" past Jan. 31, Taylor said.
Sabey shuttled between meetings yesterday, reportedly trying to arrange for capital. During the day, no one representing the company was available to comment publicly on the chain's future.
A source close to the company, however, said the chain would continue to operate on a business-as-usual basis. Credit cards would still be accepted and refunds would be made at its five stores.
Court documents filed yesterday referred to a "modified business plan" that detailed F&N's financing needs over the next several weeks. However, Taylor said last night that the plan had not been completed.
Documents gave hints of behind-the-scenes struggles to save the company, as F&N executives worked to raise cash to pay bills and satisfy strict conditions set by Citibank.
Despite those efforts, F&N lost money in October and November. The year-to-date losses at the end of November totaled $27.9 million, up $1.3 million from October's total.
December figures were unavailable. But Taylor said the chain owes suppliers $5 million in credit extended after F&N filed for Chapter 11 bankruptcy protection in September.
In addition to the difficulty of operating during a recession, Taylor described delays in getting badly needed cash:
-- Citibank's financing after the Chapter 11 filing came 30 days late.
-- The closing of the sale of Tacoma Mall, Everett Mall and Capital Mall stores to Mervyn's was delayed by almost two months, which reduced the money available to pay debts. Moreover, the sale netted F&N $800,000 less than anticipated.
Cash-flow problems caused checks to bounce and created problems with Citibank. On Dec. 9, for example, F&N could not make a $4.5 million payment to Citibank as required by its finance agreement with the bank. Later, when Citibank discovered an error in its reading of the agreement, the bank reduced the money available to F&N by $1.5 million, Taylor said.
Employers are required by the Worker Adjustment and Retraining Act to give workers 60 days notice when large-scale layoffs are planned. The notice said employees whose jobs are eliminated before the 60 days will receive pay through that period, but F&N has told employees no additional severance will be available.
Joe Peterson, president of Local 1001 of the United Food & Commercial Workers, said the union is planning to negotiate some additional severance for the 500 F&N sales clerks it represents at the retailer's three Seattle-area stores.
At F&N's downtown store, it looked like business as usual yesterday with customers buying goods or returning holiday gifts.
"I'm confident," said men's furnishing's clerk John Zupa. "I think the strength of the Frederick & Nelson name will help the store survive."
One encounter in the store helped illustrate why times are tough for retailers.
Arita Scarlatos, a long-time customer, walked up and said she wanted to return some merchandise for cash.
"My husband gets tears in his eyes when he thinks of F&N going out of business," she said. "It's a wonderful store."
"So why don't you give this stuff to the Goodwill," joked Zupa.
She smiled back. "I need the money," she said.
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