M&A

Levitz: Will Anyone Love It this Time Around?

It’s Déjà vu: the furniture company, bankrupt for the third time, is on the sales block again.
Stephen TaubNovember 26, 2007

Levitz Furniture is once again looking for a buyer. The ill-fated retailer, which this month filed for bankruptcy for the third time in less than a decade, received court approval to sell itself at a bankruptcy court auction, the Associated Press reported.

The action will happen fast: The auction is scheduled for Wednesday and a sale hearing is set for Thursday.

Levitz is using a so-called stalking horse, in which the company selects one potential buyer to make an initial, minimum bid. The purpose is to avoid an unrealistically low bid.

The bankruptcy judge also ruled that private-equity firm YA Global Investments, a subordinated lender, can submit at the auction a credit bid for Levitz debt under its control, according to the AP. Levitz reportedly owes YA about $22.7 million on bonds that mature in August 2010.

The company also owes about $33 million to its senior lenders, led by General Electric Capital Corp., the AP report said.

The wire service explained that credit bidding allows a lender to bid for a company with the debt it already holds, rather than with cash. Frequently, the bid is for an amount equal to the face amount of the debt, even though the bidder may have bought the debt at a steep discount from the banks holding the debt.

Levitz previously filed for bankruptcy in October 2005 when it was known as Levitz Home Furnishings. It was bought at that time for $70 million by the private-equity firm Prentice Capital Management, which was founded by two former traders of hedge fund SAC Capital Management.

After that deal closed, Levitz entered into a new $55 million credit facility with GE Commercial Finance, and Prentice provided an additional $50 million in funding.

After Harbinger Capital Partners became a minority shareholder in July 2006, Prentice upgraded and diversified its merchandise and started a direct sourcing program, according to Furniture Today.

Earlier this year, the company replaced CEO Tom Baumlin and chairman Elliott Wahle with Larry Zigerelli, a former president of Meijer, the grocer and general merchandise retailer, who had no furniture industry experience, Furniture Today reported.

When it filed for bankruptcy earlier this month, Levitz said it had managed to slow its losses and “remains cautiously optimistic that, if properly capitalized, it could reap the benefits of initiatives that have already reduced costs and created a foundation from which a going concern may be preserved.”

But Levitz might not be able to climb out of its rut without some major retooling. “The problem with something like Levitz isn’t so much the consumer perception of the name or even the merchandise mix,” Jerry Epperson, an analyst with Mann, Armistead & Epperson, told Furniture Today. “The problem is that over many, many years, the demographics have moved and their stores haven’t.”