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Feb 09 2012

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WSJ(2/9) Dubai's Barneys Adventure

   (From THE WALL STREET JOURNAL) 
   By Mike Spector and Dana Mattioli 

In recent weeks, Barneys has tapped bankruptcy and restructuring lawyers at Kirkland & Ellis, said people familiar with the matter, as the chain aims to keep a nascent turnaround on track.

Barneys needs to refinance a $200 million credit line that comes due in September. To do so, Barneys may need to reduce other debt mostly held by hedge-fund manager Richard Perry and supermarket magnate Ron Burkle.

Istithmar World, the investment arm of state-owned Dubai World, paid $942.3 million for Barneys in a buyout at the top of the market in 2007. Istithmar in early 2010 invested another $20 million to boost Barneys' coffers as it struggled in the wake of the recession.

The law firm has advised on big bankruptcies including the parent of United Airlines, but also helps companies fix their balance sheets outside of court. In addition, Barneys sales and earnings have surged of late.

"Barneys New York is actively engaged in discussions with the company's small group of lenders to improve its balance sheet and position Barneys New York for sustainable, long-term growth and success," a Barneys spokeswoman said in a statement. "We are focused on resolving this matter as expeditiously as possible, and it will remain business as usual at Barneys New York."

The chain had a "record" December, the spokeswoman said, with sales increasing 18%. Barneys' earnings before interest, taxes, depreciation and amortization in 2011 rose 40% to $34 million, the spokeswoman said.

Beloved by fashion hounds, Barneys operates 39 stores across the U.S., and is best known for its flagship store in Manhattan. Its famed warehouse sales have long drawn women hoping to snag a deal on pricey outfits and accessories. Simon Doonan, the retailer's longtime creative director until early 2011, is a personality who serves as a public ambassador for Barneys' brand.

But for all its flair, the company has had a trying business history. Barneys went through bankruptcy proceedings in 1999, and, after Istithmar's buyout in 2007, it struggled as global economic woes crimped consumers. Another Istithmar retailer, Loehmann's Holdings Inc., also faced debt problems and sought bankruptcy protection in 2010. An Istithmar spokesman declined to comment.

Meanwhile, flash-sale websites like Gilt Groupe and Rue La La carrying luxury labels like Marc Jacobs and Zac Posen for as much as 70% off retail, have made a splash in recent years. And larger rivals, like Neiman Marcus Group Inc. and Saks Inc., have been financially steadier with larger and more-numerous stores.

When consumers pulled back during the recession, some competitors broadened their assortments to offer lower-priced entry products, but Barneys held the line on pricing, says Richard Jaffe, a retail analyst with Stifel Nicolaus & Co.

That could pay off later, so long as Barneys can rework its debts.

In addition to Kirkland, Barneys recently hired AlixPartners, a turnaround advisory and consulting firm, to help the chain restructure, people familiar with the matter said. Barneys continues to work with investment bank Perella Weinberg Partners, which has been advising the chain since the throes of the financial crisis.

Mr. Burkle, the billionaire who bought Barneys debt through his Yucapia Cos. investment firm in fall 2009, at one point tried to grab control of the luxury chain.

He offered to invest in Barneys and restructure the company to give him 80% control. But the talks went nowhere, and no other substantive discussions with Mr. Burkle have taken place since then, said people familiar with the matter.

(END) Dow Jones Newswires

09-02-12 0401GMT