April 15, 2008 / 1:58 PM / 11 years ago

Linens 'n Things seeks capital restructuring

NEW YORK (Reuters) - Linens ‘n Things said on Tuesday it is in talks with creditors on a capital restructuring that could bail out the ailing retailer and help it avoid bankruptcy.

The seller of textiles, housewares and other home goods also said it has delayed a $16.1 million interest payment while talks continue, and its lenders have agreed to delay exercising their right to stop making loans to the company.

Linens ‘n Things, bought by affiliates of billionaire investor Leon Black’s firm Apollo Global Management in 2006 for $1.3 billion, said it is in talks with a committee of its debtholders about altering its capital structure.

The Wall Street Journal reported last week that Linens ‘n Things could file for Chapter 11 bankruptcy protection as early as Tuesday. A source told Reuters on Friday that bankruptcy was one option being considered, but not the only option.

A bankruptcy by Linens ‘n Things would be among the biggest failures by a business acquired during the recent private equity boom and a stark example of how the subprime mortgage debacle and resulting credit crunch have spread to other parts of the economy.

Linens ‘n Things Chief Executive Robert DiNicola blamed the company’s financial woes on the triple punch of the credit crunch, the housing downturn and the slowdown in consumer spending.

“The increasing deterioration of the credit markets and the residential real estate meltdown ... and the resulting downturn in consumer spending, especially in the home sector, have combined to create additional and acute financial challenges for the company and the retail sector as a whole,” DiNicola said.

Linens ‘n Things posted a net loss of $242.1 million in 2007 on net sales of $2.79 billion. Comparable-store sales fell 3.4 percent for the year, while its ratio of earnings to fixed charges was 0.4.

DiNicola said the company’s operating results, along with “the rapidly increasing financial storm outside the company,” have caused its vendors to impose on it significantly more restrictive payment terms, which in turn has “had a dramatic effect on our liquidity outlook for the remainder of the year.”

The housing downturn and slowdown in consumer spending have hurt all providers of home goods, including Bed Bath & Beyond Inc (BBBY.O), Pier 1 Imports Inc (PIR.N) and Williams-Sonoma Inc (WSM.N).

But like rivals Tuesday Morning Corp (TUES.O) and Kirkland’s Inc (KIRK.O), Linens ‘n Things has had an especially hard time competing at the low end with discounters like Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N) and at the high end with chains like Pottery Barn and Crate and Barrel.

As Linens ‘n Things explores options to strengthen its balance sheet and improve its access to funding, it will defer a $16.1 million quarterly interest payment due on April 15 to some of its debtholders. The company has a 30-day grace period before the nonpayment becomes a default.

Linens ‘n Things said it has until May 13 before its creditors, which include units of General Electric Co (GE.N), can exercise their rights to withhold loans and other credit extensions.

A spokesman for private equity firm Apollo, which is planning an initial public offering, declined to comment.

Linens ‘n Things, which had 589 North American stores at the end of 2007, said it was working with turnaround firm Conway Del Genio Gries & Co. It said the committee of debtholders is being advised financially by Houlihan Lokey Howard & Zukin Capital Inc and legally by Kasowitz, Benson, Torres & Friedman LLP.

Editing by Dave Zimmerman and John Wallace

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