Fashionable Deb Shops File for Chapter 11 Bankruptcy

Deb Shops, a retailer of young-women’s clothing, filed for Chapter 11 bankruptcy protection on June 27, 2011. The senior lenders are taking over operations, nearly four years after the company was purchased by Thomas Lee.

A group of firms led by Cerberus Capital Management’s Abelco Finance unit is taking over the company through an offer known as a credit bid. Lenders convert the amount owed to them into equity via the credit bid.

The bid from the lenders is called a stalking-horse proposal. The proposal opens up a court-supervised auction for the purchase of Deb Shops. If Abelco wins the bidding, they will close on the deal in September 2011.

Mr. Lee’s investment firm, Lee Equity Partners, is to retain an ownership stake in Deb under the terms of the sale agreement. Lee Equity purchased Deb in July 2007 for a price tag of $395 million.

Deb Shops and other store operators ran into financial difficulties in 2008 as the credit markets tightened and consumers slowed down their spending.

Deb is insisting that the bankruptcy filing and subsequent sale won’t affect its day-to-day business. Current management is staying and vendors are being paid.

Deb’s chief executive Mark Hoffman stated, “This is strictly a financial restructuring of Deb Shops business and we foresee no impact on our operations as we proceed through this process.”

Benjamin Brand Services – Chicago bankruptcy lawyer

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