Bakers Footwear files bankruptcy amid liquidity pressure, loan default

By Caroline Salls

Pittsburgh, Oct. 3 - Bakers Footwear Group, Inc. filed Chapter 11 bankruptcy Wednesday in the U.S. Bankruptcy Court for the Eastern District of Missouri.

The company said previous losses and recent lower-than-planned sales have placed increased pressure on its liquidity position and resulted in default under its senior credit facility.

According to an 8-K filed with the Securities and Exchange Commission, the credit facility defaults include failures to comply with requirements for maximum borrowing limits, repayment of excess amounts, a covenant related to late payment and other lease and financial covenant obligations.

As of Oct. 2, the company said there was $17.8 million outstanding under credit agreement, including an early termination fee of $900,000, with interest at the default rate.

Restructuring plans

Subject to the bankruptcy process, Bakers said it intends to continue to move forward with its restructuring plans, including the sale of up to 52 leases to Aldo U.S., Inc., closure of other stores, liquidation of inventory of closed stores and other actions.

All 215 Bakers stores in 34 states are open and serving customers, the release said.

The company said it plans to work to restructure its business and its lending arrangements through the bankruptcy process.

Bakers said it does not expect any recovery for common stockholders.

DIP financing

In conjunction with the bankruptcy filing, Bakers has secured a commitment for up to $22 million of debtor-in-possession financing from Crystal Financial LLC, less the amounts outstanding on the existing credit agreement.

The amount the company can borrow would also be limited based on its credit card receivables, in-transit cash, eligible inventory and availability reserves, with an availability block equal to the greater of 7.5% of the borrowing base or $1 million, the 8-K said.

Interest on the DIP financing will be Libor plus 800 basis points, with the rate increasing to Libor plus 900 bps for specified obligations.

The facility will terminate on the earlier of 30 days after the closing unless a final order has been entered by that date, six months after closing, the occurrence of an event of default and the closing of a sale of all or substantially all of the company's assets.

Under the DIP loan agreement, Bakers must enter into a definitive term sheet for a reorganization plan before Nov. 2.

Debt details

According to court documents, Bakers had $41.91 million in assets and $59.5 million in debt as of April 28.

The company's largest unsecured creditors are:

• East Mount Shoes Ltd. of Taichung, Taiwan, with a $6.91 million trade claim;

• Steve Madden, Ltd. of Long Island, N.Y., with a $3.67 million debenture claim;

• The H Co. IP LLC of Los Angeles, with a $2.55 million license agreement claim;

• Bob & Bobby, Inc., of Los Angeles, with a $2.04 million trade claim;

• General Growth Properties, Inc., based in Chicago, with a $1.56 million leases claim;

• Adjunct Trading HK Ltd. of Central, Hong Kong, with a $1.53 million trade claim;

• Step Perfect of Kowloon, Hong Kong, with a $1.47 million trade claim;

• Dolce Vita Footwear Inc. of Seattle, with a $1.42 million trade claim;

• Andrew N. Bauer Revocable Trust of St. Louis, with a $1.28 million debenture claim; and

• Mastership International Co., Ltd. of Taichung City, Hong Kong with a $1.2 million trade claim.

Peter A. Edison, Steven Madden Ltd., Austin W. Marxe and David M. Greenhouse and affiliates Special Situations Cayman Fund, LP, Special Situations Fund III QP, LP and Special Situations Private Equity Fund, LP, Wells Fargo & Co. and affiliates Wells Capital Management Inc. and Wells Fargo Funds Management, LLC and Private Equity Management Group, Inc. own more than 5% of the company's voting securities.

Defaults triggered

The bankruptcy filing constituted an event of default under the company's existing credit agreement and $4 million in total principal amount of subordinated convertible debentures, the $5 million of subordinated debentures issued to Steve Madden, Ltd., several of Bakers' operating leases and other arrangements.

However, the company said in the 8-K that any attempts to enforce the defaults are automatically stayed by the bankruptcy filing.

The company's restructuring legal counsel is Bryan Cave, LLC and its financial and restructuring adviser is Alliance Management.

St. Louis-based Bakers is a footwear retailer. The Chapter 11 case number is 12-49658.

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