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UPDATE 4-Filene's Basement files for Chapter 11, to sell stores

* To sell 17 of 25 stores for $22 mln

* Liabilities of up to $500 mln, assets up to $100 mln

* Unsecured trade creditors include CIT Group, Jones Apparel

* Has 1,894 full and part-time U.S. employees (Recasts, adds details from Filene’s statement)

By Ajay Kamalakaran and Santosh Nadgir

BANGALORE, May 4 (Reuters) - U.S. discount clothing retailer Filene’s Basement Inc filed for Chapter 11 bankruptcy protection on Monday and said it had agreed to sell 17 of its 25 stores to an affiliate of Crown Acquisitions for $22 million.

The sale, which includes Filene’s flagship stores in New York’s Union Square and in Boston, has yet to receive bankruptcy court approval. The court may solicit additional offers for the assets in an auction that is expected to be held in about five weeks, Filene’s Basement said.

“Crown, which is based in New York, intends to continue to operate the stores under the Filene’s Basement name,” the company said in a statement.

In a filing with the U.S. Bankruptcy Court for the District of Delaware, the retailer listed liabilities of up to $500 million and assets of up to $100 million.

The retailer, which was recently acquired by an affiliate of the Buxbaum Group, said in an affidavit that it has 1,894 full and part-time employees in the country. Its major operations are in the metropolitan areas of the U.S. East and Midwest. Filene's unsecured trade creditors included CIT Group/Commercial Services Inc CIT.N and Jones Apparel Group Inc JNY.N, while the retailer's unsecured landlord creditors included Best Buy Inc BBY.N and Federal Realty Investment Trust FRT.N, according to the filing.

“The retail reaction to the recent economic downturn has narrowed the price differential between department stores and the value retailers and has substantially reduced consumer buying,” the retailer said in the affidavit.

Filene’s said the current economic recession has been particularly severe in the fashion retail sector, and the loss of sales and margin has “put significant negative pressure” on its cash flow.

SALE TO BUXBAUM

Buxbaum Group, which specialises in corporate turnarounds and retail liquidations, purchased Filene's Basement from Retail Ventures Inc RVI.N last month, after the discount clothing retailer experienced significant liquidity problems.

Columbus, Ohio-based Retail Ventures, which acquired the chain out of bankruptcy in 2000, had said that it would not realize any proceeds from the transaction and that it would continue to guarantee all of Filene’s Basement’s obligations under its secured credit agreement.

Filene’s Basement, known for its off-price clothing and annual “running of the brides” wedding gown sales, was put up for sale after weeks of talks with suppliers and lenders in an effort to help it avoid bankruptcy.

As sales dropped off earlier this year, the 100-year-old chain announced plans to close 11 of its stores and warned in February that it may need more money beyond its current lending agreements.

Filene's Basement was started about 100 years ago as a bargain basement for the Filene's department store in Boston to sell its excess merchandise. Federated Department Stores, now called Macy's Inc M.N, had bought the chain in 1929.

The retailer also filed for bankruptcy once before, in 1999, but emerged the following year when Value City, which later became Retail Ventures, bought its stores.

The case is In re: Filene’s Basement Inc., U.S. Bankruptcy Court, District of Delaware, No. 09-11525. (Reporting by Ajay Kamalakaran and Santosh Nadgir; Editing by Greg Mahlich and Mike Miller)

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