THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, July 9, 1994 TAG: 9407090194
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 118 lines
Fine's Men's Shops Inc., a Norfolk-based retailer founded in 1933, has sought protection from its creditors in U.S. Bankruptcy Court, blaming the cost of financing a management-led buyout in 1989.
Fine's, which started with a single store on Granby Street in downtown Norfolk, said that its assets totaled $6.9 million but that it owed $20.1 million, most of it to two lenders.
For several months, Fine's has been trying to restructure the terms of long-term loans that the management used five years ago to buy the company, Mitchell Fine, president and chief operating officer, said Friday.
However, the company hit an impasse during negotiations with its two lenders. ``It came back to the fact that we probably paid too much for the company in 1989,'' said Fine, grandson of the chain's founder.
``Nineteen eighty-seven, 1988 and 1989 were the three best years that the company ever had, and we bought the company at the top of the market,'' he said.
Fine's was started by two brothers, Ruby and Leon Fine. It remained in family hands until 1970, when it was sold to Interco Inc., a St. Louis-based apparel manufacturer and retailer. When the chain was sold, it had nine stores in Virginia and North Carolina and was opening a 10th.
By 1989, Interco was reeling from financial problems of its own and sold Fine's back to the company's management. As part of that transaction, Interco required that the Fine's management also buy United Shirt Distributors Inc., a Michigan-based chain of apparel stores.
Operations at United Shirt did not mesh with those at Fine's, and United Shirt was closed in 1991, Mitchell Fine said.
By filing for Chapter 11, Fine's can continue doing business while it attempts to reorganize its debts under court supervision.
The chain, which employs 475 people, has 69 stores in nine states, including Virginia, Pennsylvania, the Carolinas, Georgia and Alabama. The company concentrates on selling brand-name apparel to men between 18 and 35 years old.
Mitchell Fine said the chain's sales have been hurt in recent years by an erosion of customer traffic at its mall stores and by lackluster demand among young men for fashionable apparel.
Fine's has not yet filed a statement of financial affairs with the bankruptcy court in Norfolk. However, its president estimated that sales for the fiscal year ended last October were between $45 million and $50 million. So far this year, sales have been running behind their pace for 1993, he said.
Still, the company has been able to generate a profit from operations every year since 1989, Fine said. ``All of our problems have been servicing our debt'' on the $22.5 million acquisition, he said.
Fine's, he added, has not missed any payments to its lenders or vendors. ``We have cash on hand and are generating cash from ordinary sales,'' Fine said.
Also, apparel manufacturers have continued to ship their goods to the company, he said.
Fine's largest creditor is Heller Financial Inc., a Chicago-based commercial lender that provided a large part of the financing for the management buyout. Heller is owed $6.13 million, according to the bankruptcy filing.
Cargill Financial Services Inc., a unit of the Minnetonka, Minn.-based commodities trading and processing concern, also provided financing for the 1989 management buyout and is owed $3.67 million.
The interest rate on its loans from Heller is pegged to the prime rate, which stands at 7.25 percent, plus 1.5 percentage points, while the rate on its Cargill loan is 12 percent, Fine said.
In a separate action, Fine's parent company - Azalea Acquisition Corp. - also filed for Chapter 11 protection in bankruptcy court in Norfolk. Azalea, which shares the same Norfolk Industrial Park headquarters as Fine's, listed liabilities of $13.17 million and assets of $10.8 million.
In its filing, Azalea said it owed Heller Financial $9.5 million from a $10 million term loan and owed Cargill Financial $3.67 million.
Azalea's 11 shareholders include eight members of the Fine's management, the parent company of Baltimore-based investment banking firm Alex. Brown & Sons, an Alex. Brown officer and a former officer.
The largest shareholder in Azalea is Barry S. Fine, the company's chief executive officer. Mitchell Fine, who holds the second-largest stake in Azalea, estimated that Fine's management controls 80 percent of Azalea's stock.
Fine said he expects the retailer to emerge from bankruptcy within 12 to 18 months. ``We need to go through at least the back-to-school and Christmas shopping seasons to develop a (reorganization) plan we can put before the court,'' he said.
Fine's, he said, has no plans to change its management or restructure the way it conducts its day-to-day business.
Although Fine's has not yet been caught in a cash squeeze, the company will need additional credit to buy inventory for the crucial back-to-school shopping season, Fine said.
As part of Fine's bankruptcy filing, attorneys disclosed that a Boston company, GBFC Inc., has agreed to lend the retailer as much as $4 million for payroll, purchases of inventory and other needs. The attorneys asked that the court quickly provide the company with a hearing so that it can begin borrowing from GBFC.
Like any other company in Chapter 11, Fine's will need court approval before taking on additional debt.
As security for the funds it loans to Fine's, GBFC would receive a first priority lien on the retailer's inventory and on certain accounts receivable and a junior lien on all of Fine's other assets.
GBFC, Fine said, specializes in providing financing to retailers, including those in bankruptcy reorganization or that have emerged from bankruptcy. ILLUSTRATION: FINE'S CHRONOLOGY
1933: Brothers Ruby and Leon Fine open a men's clothing store on
Granby Street in downtown Norfolk.
1970: Fine's Men's Shops Inc., with nine stores in Virginia and
North Carolina, is sold to Interco Inc., a national retailing
concern and apparel manufacturer.
1989: Fine's management, with help from investment bankers at
Alex. Brown & Sons in Baltimore, buy back Fine's from Interco.
July 7, 1994: Fine's and its parent, Azalea Acquisition Corp.,
file for Chapter 11 protection from creditors in U.S. Bankruptcy
Court in Norfolk.
by CNB