December 4, 2014 / 6:30 PM / 3 years ago

UPDATE 1-Cerberus-owned Deb Shops files for bankruptcy

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By Tom Hals

Dec 5 (Reuters) - The Deb Shops retail chain filed its second bankruptcy in less than four years on Thursday and said it may conduct a going-out-of-business sale at its 295 stores that specialize in teen and young women's fashion, according to court documents.

Deb Stores Holding LLC, which is controlled by private equity firm Cerberus Capital Management, said it would seek a buyer of the business. If no buyer emerged, it planned to call in the liquidators, according to filings with the U.S. Bankruptcy Court in Wilmington, Delaware.

"Deb's recent performance has been strained due to a combination of factors, including historic lack of capital invested in (the) business resulting in old tired stores," said Dawn Robertson, the company's president, in a court filing.

Robertson also blamed weakness in teen fashion.

Teen apparel retailers such as Aeropostale Inc and American Eagle Outfitters have struggled to compete with modestly priced "fast fashion" chains such as H&M of Sweden and Forever 21.

Philadelphia-based Deb Shops operates in 44 states, primarily along the East Coast and in the Midwest. The company employs 4,000 full-time and part-time employees, according to court documents.

The company said its revenues in the first 10 months of the year was $205 million, down about 10 percent from the same period in 2013.

Deb Stores retained investment bank Houlihan Lokey in October to find a buyer, and while none were found, Robertson said in court papers the company remains hopeful for a rescue sale to keep the chain operating.

Deb Shops also filed for bankruptcy in 2011, and sold the business to its lenders who converted what they were owed into ownership.

Those lenders included Cerberus Capital Management, which now owns nearly 70 percent, followed by Guggenheim Partners, with 21 percent, and Credit Suisse Securities USA LLC and Lee Equity Partners.

Lee Equity is the investment firm of Thomas H. Lee, who bought the chain in 2007 during the buyout boom for $395 million.

Deb Shops traces its roots to Philip Rounick and Emma Weiner, who opened their first shop in Philadelphia in 1932 under the name JOY Hosiery. (Reporting by Tom Hals in Wilmington, Delaware)

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