Baby Phat, bankrupt, huh? Yes, Baby Phat! Here's a watered down version of the article:Kellwood Co., one of the largest apparel manufacturers in the U.S., could be forced to file for bankruptcy soon, after it failed to reach an agreement with its bondholders, people familiar with the matter said.
The St. Louis-based company, which employs roughly 2,000 people and owns such popular clothing brands as Phat Farm, Sag Harbor and Vince, was taken private in February 2008 by buyout firm Sun Capital Partners for $542 million.
The twin effects of a heavy debt load and a sharp drop in consumer spending have crushed the company's financial results. Kellwood has a $140 million bond issue maturing Wednesday. Unable to refinance these bonds amid the constricted credit markets, Kellwood hired financial advisers to restructure its debt.
The firm has tried to defer the bond payment through a so-called exchange offer, in which the company would swap these bonds for ones maturing in 2014 with sweetened terms. Deutsche Bank AG, the largest holder of the bonds, elected not to tender the offer and a deal is unlikely to be reached, according to people familiar with the discussions.
A Chapter 11 filing for protection from creditors could come as early as next week, though it remains possible the company could avoid such a move. The company has about $500 million in total outstanding debt and about $800 million in annual sales.
Michael Kramer, installed as Kellwood's chief executive officer 10 months ago, said
Deutsche Bank had indicated it intended to accept the exchange offer, but then changed its mind. "They've put us in a bad spot and we can't understand how they could rationalize this economically in any way," said Mr. Kramer, who said the company is in the process of hiring bankruptcy counsel. "We believe this bond offering benefits everyone and their position is very disappointing." Spokesmen for Deutsche Bank and Sun Capital declined to comment.
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