All that Glittering Didn’t Make It Golden

Family-owned jeweler Shane Co. is latest consumer-oriented company to file for bankruptcy.
Stephen TaubJanuary 13, 2009

The widening stream of bankruptcy filings continues to carry along more struggling retailers and consumer products concerns. The latest to be caught up: family-owned jewelry store chain Shane Co.

Shane listed assets and liabilities of between $100 million and $500 million, according to the Denver Business Journal, which cited documents filed with the court. Other press reports said the company blamed “disappointing” holiday sales and a “grim” outlook on the deepening U.S. recession.

Shane, which operates 23 stores in 14 states, owes $26 million to its 20 largest unsecured creditors, according to the Denver paper. Its largest unsecured creditor is Dison Gems of New York, which is owed $4.7 million. The paper also said that president, CEO and chairman Tom Shane, who is also the company’s commercial pitchman, is owed the most. He reportedly loaned Shane about $20 million during the past few years.

It cited a statement from the company that said: “The severity of this past holiday season dramatically impacted existing liquidity requiring the company to seek this bankruptcy protection. The company plans to continue operating the business without interruption.”

In other bankruptcy news, Interstate Bakeries Corp. said that it is still trying to secure financing to emerge from Chapter 11. The company — known for its Twinkies and Wonder Bread, among many other products — said that investors and lenders have been unable to work out the arrangements for a $125 million credit line from General Electric Capital Corp. and GE Capital Markets, according to the Kansas City Star. The loan is part of the $600 million financing package needed to emerge from bankruptcy, the paper noted. The baking company has a Feb. 9 deadline to get the deal done, according to the report. “We continue to work diligently and continue to make progress and hope to reach a positive conclusion,” spokesman Lew Phelps told the newspaper.

Meanwhile, Circuit City Stores said that it is engaged in “significant discussions” with two “highly motivated” parties that want to keep the bankrupt consumer electronics retailer operating as a going concern. “These interested parties are considering providing additional financing to allow the company to sustain operations and move forward with a subsequent restructuring through a stand-alone plan and/or purchasing the company or all or substantially all of the company’s assets,” Circuit City said.

It said that the parties have substantially completed due diligence and now are in negotiations with the company and the company’s major stakeholders in order to finalize a transaction. It stressed there is no assurance a deal will occur.

As the number of bankruptcies surges, financing is becoming more difficult to obtain for companies wanting to remain in business. In 2008 the number of new debtor-in-possession loans was about 35 percent below the number issued during the economic downturn in 2002, according to a Reuters report, and about 46 percent below the number issued in 2005 ahead of changes to the bankruptcy code.

“DIP financings are either not available in any significant size, or if they are available the pricing is scary,” Henry Miller, co-chairman of turnaround advisory firm Miller Buckfire & Co LLC., told the news service.

“DIP financing is not easily available,” added David Resnick, cohead of investment banking at Rothschild. “It’s expensive. It’s scarce — and that used to be the easiest part of a bankruptcy filing.”

Meanwhile, Bloomberg reported that Royal Bank of Scotland Plc is the biggest lender to Lyondell Chemical Co., which recently filed for bankruptcy. The financial giant may face losses on its $3.47 billion of loans to the chemicals company. RBS inherited the loans after its purchase last year of ABN Amro Holding NV’s investment bank, which extended a $1.6 billion portion of the Lyondell credit that may lose all its value.