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NEW YORK (Reuters) - Home goods retailer Linens 'n Things is considering filing for Chapter 11 bankruptcy court protection, a person familiar with the situation said on Friday.
The chain, owned by Leon Black's buyout firm Apollo Global Management, is negotiating with creditors, which include General Electric Co (GE.N), the source said.
While bankruptcy is "on the table," it is one of many options being considered, the source said. "It is not the top option, nor is it the option that the company is currently pursuing at this very second."
Citing people with knowledge of the situation, the Wall Street Journal reported on Friday that the retailer could file for bankruptcy protection by Tuesday.
Following a report by Bloomberg News that Linens 'n Things had hired Conway Del Genio Gries & Co, one of the restructuring firm's principals confirmed the hiring, but would not discuss any details.
Apollo, which bought the retailer in 2006 for $1.3 billion, declined to comment. Apollo filed this week for an initial public offering.
A Linens 'n Things spokesman did not return a call and e-mail seeking comment.
A GE spokesman confirmed that its Commercial Finance unit is the lead agent on a $700 million revolving credit facility to Linens 'n Things, but declined to comment further.
If Linens 'n Things does file for Chapter 11, it would be among the largest companies taken private in the recent buyout boom to do so.
The New Jersey-based company, whose products range from sheets and curtains to cookware and massage chairs, has had a hard time competing in the home goods arena with Wal-Mart Stores Inc (WMT.N), Target Corp (TGT.N), Williams-Sonoma Inc (WSM.N) and Bed Bath & Beyond Inc (BBBY.O).
In 2006, the company began a multi-year turnaround plan meant to improve productivity at its nearly 600 stores, with goals such as reducing the array of items sold and improving its marketing.
But the U.S. housing downturn and weak economy have exacerbated the company's problems, since consumers have reined in spending on home goods.
With $2.79 billion in net sales last year, Linen 'n Things posted a net loss of $242.1 million. Sales at existing stores fell 3.4 percent for the year, while its ratio of earnings to fixed charges was 0.4.
Moody's Investors Service on Friday downgraded the retailer's credit ratings, due in part to the environment for home goods recently worsening.
Bed Bath & Beyond reported this week a 16 percent fall in quarterly profit and forecast first-quarter earnings below Wall Street expectations.
"Moody's expects Linens 'n Things will be challenged to stem its current level of operating losses and free cash flow drain, thus placing further strain on the company's already weak liquidity position and increasing the probability of default," Moody's said in a report.
Linens 'n Things floating notes due in 2014 traded between just 35 and 40 cents on the dollar on Friday, according to MarketAxess.
Additional reporting by Megan Davies and Anastasija Johnson; Editing by Lisa Von Ahn and Braden Reddall