WHO doesn’t know who Eddie Bauer is? Think Circuit City or Linens-n- Things. Eddie Baueris a well-known sporting goods retailer with 370 stores across the United States and Canada. It started doing business in Seattle in 1920. Because of the recession, it has not turned a profit in the last 3 years. It has allegedly lost at least half a billion dollars since 2005.
Circuit City initially filed for Chapter 11 reorganization hoping to find a buyer for it’s core business but had to convert to Chapter 7 liquidation earlier this year when no buyer was found. Eddie Bauer filed for Chapter 11 reorganization on June 17 hoping to avoid the fate of Circuit City. According to its bankruptcy filing, Eddie Bauer had total assets of $525.22 million and total liabilities of $448.9 million. Even with gross annual revenues of $1 billion, the company could not handle it’s $289.5 million of outstanding debt. Before deciding to file for bankruptcy, the company tried to convince its creditors to convert the company’s debt into shares of the company without success. Facing large losses of cash everyday, the company reported that it lost $44.5 million in the first quarter of 2009, $165.5 million in 2008, and $478.7 in the last 3 years. This means that Eddie Bauer has been losing $13 million a month, or $433,000 everyday that it stays in business. The company seeks a buyer in its Chapter 11 case, following the path taken by GM and Chrysler in their bankruptcies. The big 2 emerged out of bankruptcy in 45 days as leaner and more competitive entities after shedding off more than 75 percent it their debts. Magic Mountain is going through the same bankruptcy process at this time.
Last month, Golden Gate Capital bought Eddie Bauer in bankruptcy auction for $286 million. It plans to keep most of the 370 stores in the US and Canada. The money generated from the sale will be used to pay off creditors, and to operate the business. Stockholders who will get nothing from the sale proceeds have nothing to cheer about. Although Eddie Bauer has gotten a new lease on life through bankruptcy and the sale of it’s business, it still has to turn a profit soon. Otherwise, it will have to knock on the doors of bankruptcy court again. It may be banking on the premise that the recession is about to end and retail sales will start to rebound to pre-recession levels so that it can produce profit. But having freed itself of most of it’s outstanding debt of $289 million from it’s bankruptcy reorganization and sale to Golden Gate Capital, Eddie Bauer certainly has a longer breathing time now since it doesn’t have to allocate anything for debt service payments, and can use operating income to stay afloat longer, and eventually survive the recession.
Many individual debtors currently find themselves in EDDIE Bauer’s financial situation. Instead of owing hundred of millions of debt to creditors, they owe $20,000 to $200,000 of credit card debt. I have many clients with credit card debt exceeding $100,000. Many have used credit cards to cover mortgage payments and living expenses for the last 3 years. Unlike Eddie Bauer, individual debtors cannot attempt to convince credit card companies to convert their debt into equity, although debtors certainly feel that they already owe their lives to their creditors because they need to work several jobs to be able to generate enough income to keep their credit card payments current. Unlike Eddie Bauer, nobody will give them $100,000 to pay off their credit card debt. But like Eddie Bauer, individual debtors can seek bankruptcy relief to start their lives again without accumulated debt. Just like Eddie Bauer, individual debtors can get a new lease on life without accumulated debt, and become productive citizens again. Individual debtors who seek bankruptcy relief can keep most if not all of their assets while getting rid of their debts. It’s a good law. Invoke it if you qualify.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published on August 8, 2009 in Asian Journal Los Angeles p. C4 )
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