Capital Markets

A “Stalking Horse” Enters Steve & Barry’s Stable

Bay Harbour-related company starts bidding at $163m to help get retailer out of Chapter 11.
Stephen TaubAugust 5, 2008

Steve & Barry’s LLC may make it after all, if the early bidding for the bankrupt discount retailer of college clothes and related stuff is any indication.

The company, after filing for Chapter 11 protection on July 9, said the U.S. Bankruptcy Court approved a “stalking horse” asset purchase agreement with BH S&B Holding LLC, a newly formed subsidiary of investment firm Bay Harbour Management. Under its terms, BH S&B Holdings would acquire certain of the company’s assets for $163 million.

The investor group also said it intends to continue to operate the Steve & Barry’s retail stores as a going concern. But the stalking-horse proposal is seen as the opening bid for an auction process that is scheduled to take place this month, and will be subject to higher and better offers.

Bay Harbour Management has significant experience in purchasing distressed companies and turning them around. The firm’s holdings have included the retailer Barney’s New York and Telcove. It also led in the rebranding and turnaround of the former Aladdin Casino, now operating on the Las Vegas strip as the Planet Hollywood Resort and Casino.

Steve & Barry’s was founded in 1985, and currently operates 276 stores throughout the U.S.

The offer, if accepted, would be a “steal,” Howard Davidowitz, chairman of Davidowitz & Associates Inc., a Manhattan-based retail consulting and investment banking firm, told Newsday. The paper noted that prior to the filing General Electric provided Steve & Barry’s with a $197 million asset-based loan, of which about $135.9 million is outstanding. PrenSB loaned the company $30 million. Both lenders are claiming priority in claiming the company’s assets.

Newsday noted that the bid has received the support of GE and PrenSB Llc, as well as the creditor committee and is expected to be accepted in court.