Bankrupt Syms Corp. (SYMSQ:US), the discount clothing chain, and its Filene’s Basement LLC unit won court approval to send a reorganization plan to creditors for a vote.
U.S. Bankruptcy Judge Kevin Carey at a hearing today in Wilmington, Delaware, approved the company’s disclosure statement, an outline of the retailers’ reorganization plan to exit bankruptcy, according to court documents.
After shutting down operations and selling off its remaining inventory, Syms, the committee of unsecured creditors and the equity committee debated and negotiated how best to develop a plan to exit court protection. After mediation, the company and shareholders reached an agreement on a plan, which is now also supported by the unsecured creditors, according to court documents.
The company will reorganize around Syms real estate assets, valued at about $147 million, which they would then manage, lease and sell over the coming years, according to court documents. Syms filed an amended reorganization plan this week adding new elements including an equity rights offering and a share buyback from majority stockowner Marcy Syms, according to the disclosure statement.
The company will seek court approval of the plan at an Aug. 29 hearing.
Marcy Syms, who owns about 54.4 percent of the company’s equity, has agreed to sell her stake for $2.49 a share for a total of about $19.6 million, which will be paid over time, court papers show.
The company will hold an equity rights offer for existing shareholders to raise about $25 million, according to the disclosure statement. Investors that don’t participate would be diluted by about 13 percent. The offering will be backstopped by DS Advisors LLC, Esopus Creek Value Series Fund LP-Series A and Marcato Capital Management LLC.
After paying exit costs, 60 percent of the proceeds of the offering and real estate sales will go to pay creditors and 40 percent to pay off Marcy Syms until she receives $10.7 million. The remainder she is owed would be paid once all creditors claims have been satisfied.
The value of the reorganized Syms shares will be “difficult to predict,” the company said in the disclosure statement. Based on the real estate value and the influx of shares, they may be worth $1.50 to $2, assuming creditor claims are between $100 million and $110 million.
The share value could “vary significantly” due to the undulating real estate prices which “could be significantly greater than the $147 million” estimate ascribed to it. In the near future, Syms will sell off 13 properties and another three in the midterm after getting leases. It will then sell its prized asset, the “Trinity” property located in lower Manhattan.
Over a four- to five-year period, the company says it could get as much as $120 million more for Trinity if it is developed as a mixed-use building, adding as much as $7.22 a share. Syms also cautioned that the market may deteriorate as well.
“Expectations for future shareholder value depend largely on the Trinity Property, as the other properties owned by Syms likely will be necessary to pay creditor claims,” the company said in the disclosure statement.
Syms has no secured claims and its unsecured creditors, owed about $53.9 million, would be paid in full. Syms and the shareholders committee say that Filene’s is insolvent, which the unsecured creditors disputed.
To resolve the issue, Syms will allow Filene’s creditors to receive a recovery from Syms assets. Filene’s trade creditors would be paid in full over time, while Filene’s creditors with lease rejection claims will get a recovery of 75 percent. Filene’s creditors have the option to receive a payout of zero to two percent to retain its right to sue Syms.
The company listed assets (SYMS:US) of $236 million, including $97.7 million in real estate inventories, and liabilities of $94 million, according to court papers.
Syms, based in Secaucus, New Jersey, was founded by Sy Syms in 1958. The company bought Filene’s Basement in a bankruptcy auction for about $64.4 million in June 2009. They had 25 Syms stores and 21 Filene’s Basement locations.
Filene’s, famous for the “Running of the Brides” wedding gown sale, was founded by Edward Filene in 1909, when he opened up his Boston basement to clear out merchandise from his family’s department store, eventually leading other retailers to bring their unsold goods to him, according to the store’s website.
Syms rose more than 11 percent to $4.50 today in over-the- counter trading.
The lead case is In re Filene’s Basement LLC, 11-13511, U.S Bankruptcy Court, District of Delaware (Wilmington).
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