Eddie Bauer Files for Bankruptcy

Eddie Bauer Files for Bankruptcy

By STEPHANIE ROSENBLOOM and MICHAEL J. de la MERCED
Published: June 17, 2009
Source: http://www.nytimes.com/2009/06/18/business/18bauer.html

Eddie Bauer, the outdoor-clothing chain that sold goose-down coats to Mount Everest mountaineers and college students alike, filed for Chapter 11 bankruptcy protection on Wednesday and said it planned to sell itself for $202 million to CCMP Capital Advisors, a private equity firm.

The company filed for Chapter 11 protection in Delaware, and said that Bank of America, GE Capital and the CIT Group have agreed to provide up to $100 million in financing during the bankruptcy case.

Eddie Bauer, which has 371 stores in North America, is pursuing a sale to CCMP through what is known as a 363 sale process in bankruptcy court. A judge would need to approve the sale, and other potential bidders could emerge.

CCMP, as a so-called stalking horse bidder, is entitled to a $5 million breakup fee if it loses during the court-supervised auction process.

“We’re not looking to liquidate the company or close most of the stores,” said Jonathan Lynch, a CCMP managing director. “We’re trying to help 8,000 employees save an iconic American brand.”

The retailer said its stores, catalog business and Web sites would continue operating, and that it intended to honor customer gift cards, returns and loyalty program points.

Eddie Bauer is the latest apparel chain to file for bankruptcy protection in recent months, along with Mervyn’s, Steve & Barry’s, Goody’s and Gottschalk’s.

Eddie Bauer was struggling to repay its debt after consumers stopped spending on anything but necessities. The falloff in sales came as Eddie Bauer was trying to pull off a multiyear turnaround that included cost cuts, as well as changes to its management team and its merchandise.

“Eddie Bauer is a good company with a great brand and a bad balance sheet,” Neil Fiske, the company’s chief executive, said in a statement. “This process will allow the business to emerge with far less debt, positioned for growth as the economy recovers and as our new products gain traction. We expect this process to be completed very quickly, protecting our employees and critical vendor partners every step of the way.”

Shares of Eddie Bauer Holdings had been trading for about 25 cents since last week.

For the three months ended April 4, Eddie Bauer’s loss increased to $44.5 million, or $1.44 a share from $19.3 million, or 63 cents, a year earlier. Sales at full-price and outlet stores open at least a year declined 13.7 percent, in contrast to a 0.5 percent increase a year earlier. (Sales were hurt in part by Canadian exchange rates.) On top of the sales declines, the company had $427 million in debt and was struggling in the tight credit market.

In a court filing, the company said its debt load was a result of loans it took on when its onetime parent company, Spiegel, filed for bankruptcy in 2003. Eddie Bauer took on $300 million in debt, as well as Spiegel’s benefits and pension plans. The retailer said that about 50 percent of its earnings now go toward paying down that debt.

Even after cutting costs as part of its turnaround, Eddie Bauer made additional reductions. In January, it cut about 15 percent of its nonretail staff. The chain said it would also freeze salaries, limit its capital spending to about $15 million, rethink some benefits programs, reduce the size of its board and the board’s compensation, and lower Mr. Fiske’s salary by 10 percent for the rest of the year.

Eddie Bauer’s proposed buyer, CCMP, is a middle-market private equity firm that once served as a buyout arm of JPMorgan Chase. Last year, it hired Greg Brenneman, who helped fix Burger King and Continental Airlines, as its chairman.

CCMP first took a look at Eddie Bauer in 2004, but was dissuaded from making an investment because the company was then focused on becoming a women’s casual apparel chain, along the lines of J. Jill or Talbots.

“When we looked at it in 2004, we thought management was taking it in the wrong direction,” Mr. Lynch of CCMP said. “Frankly, it had lost its way.”

But a new management team led by Mr. Fiske began returning the company, founded in Seattle in 1920, back toward its outdoor adventure roots. (After nearly freezing to death during a hunting trip in the 1930s, the founder, Eddie Bauer, designed and eventually patented a quilted goose-down jacket.)

Advisers to Eddie Bauer reached out again to CCMP about a potential investment earlier this year. CCMP said it planned to support Mr. Fiske and his management team, and was seeking to keep most of the company’s stores and employees.

“Roll forward to where we are today,” Mr. Lynch said, “the business is under new leadership that’s doing all the right things.”

Eddie Bauer celebrated a new line called First Ascent last month by outfitting two mountaineers as they took on Mount Everest: Ed Viesturs (who has made a habit of climbing 8,000-meter peaks without bottled oxygen) and Peter Whittaker, the nephew of Jim Whittaker, who was also wearing Eddie Bauer when he became the first American to successfully reach the summit of Mount Everest in 1963.

“This is a milestone for us,” Mr. Fiske said in a statement last month. “It puts us literally back on top of the world.”