Finlay Files for Bankruptcy

RAPAPORT… Finlay Enterprises, which runs licensed jewelry concessions in department stores as well as its own freestanding stores, filed for Chapter 11 bankruptcy court protection in the Southern District of New York. Court papers stated that the restructuring financial services firm Gordon Brothers had agreed to act as a stalking horse bidder, meaning that, pending court approval, Finlay’s liquidation will be open to better offers at its court auction. Finlay named David Coles of Alvarez & Marsal North America (A&M) as chief restructuring adviser.

Finlay is soliciting bids for any or all assets, distinct lots of assets and individual assets, including bids for store leases, under bankruptcy court direction. The company will consider bids to enter into one or more agency agreements or the liquidation of some or all of their assets. To take part in the bidding, download the pdf document available at http://rapaportdiamondreport.com/fo/fin.pdf, which lists all the parties that must be notified in writing by 4 p.m.on September 17.

The auction will take place at Weil, Gotshal & Manges, 767 Fifth Avenue, New York City at 10 a.m. on September 23. Any bidder submitting a qualified bid may appear.

The court stated that all qualified bids would be considered, but debtors reserve the right to reject any or all bids. It was preferred that bids be “unconditional and contemplate sales that may be consummated on or soon after the sale approval hearing” of September 25. The court reserved the right to change the date without notice.

The filing came after the company more than doubled its first-quarter loss to $28.7 million, despite seeing sales rise 12 percent to $159.3 million. In February, in an attempt to dramatically cut costs, the company moved to exit its department store operations and close nearly half its specialty stores. As of August 1, 2009, the end of its second fiscal quarter, Finlay had 182 locations, including 67 Bailey Banks & Biddle stores, 34 Carlyle stores, four Congress specialty jewelry stores and 77 licensed departments with Bon-Ton.
 
Just one year ago, the company, founded as a mail-order business in 1887, was in the top ten of the National Retail Federation’s (NRF)  Stores magazine “Hot 100 Retailers” list. But rumors of a pending bankruptcy started to simmer when Finlay failed to make a semiannual interest payment of $1.7 million to holders of Finlay Jewelry’s senior notes in June 2009. Finlay’s woes parallel many of the troubles in the department store jewelry sector.

In January 2007, North Carolina–based department store Belk stopped using Finlay for its Parisian stores. Then Finlay suffered a double whammy in February 2008, when 94 Macy’s locations were lost due to the chain’s restructuring and Lord & Taylor declined to renew the licenses for its 47 fine jewelry counters. Later, the January 2009 bankruptcy of Gottschalks, based in Fresno, California, brought more pain.

As part of its diversification strategy, Finlay had acquired Carlyle & Co. Jewelers in May 2005, L. Congress in November 2006 and Bailey Banks & Biddle in November 2007, ramping up debt to improve sales. A statement on the firm’s website explains that the licensed departments brought in an average sale of $272 per item, while the standalone stores had an approximate average sale of $1,300 per item. However, the accompanying debt load proved to be overwhelming.

Days after the Chapter 11 filing, Finlay announced that Joseph Melvin, vice president and chief operating officer (COO), had retired, effective August 14. Melvin agreed to receive a severance payment of $107,320, less taxes, in six installments. The company did not announce a replacement.

Finlay Creditors
U.S. Bank, $40.6 million
Vaishali Diamond, $2.7 million
Royal Jewelry Mfg Inc, $2 million
Richline Group, $1.8 million
B H Multi Com Corp, $1.3 million
Le Vian, $1.2 million
Citizen Watch Co. of America, $1.1 million
Weindling International Corp, $756,000
Bulova Corp., $728,200
MJJ Inc, $691,000
Cybel Trading Group, $604,400
Diamond Source Industries Inc, $578,500
Uni-Creation, Inc, $475,800
Tacori, Inc., $474,700
Julius Klein Diamonds Inc., $442,500
Assurant Solutions, Inc., $423,800
M. Schamroth & Sons, $407,500
Oro Alexander Inc, $360,200
Seiko Corp. of America, $322,800
Colibri Group Inc, $318,400
China Pearl Import CP Center, $312,900
Diamonaire USA Inc., $288,000
Movado Group, $283,722
EMA Jewelry Corp., $242,700
K & F Inc., $220,700
Color Craft, $207,900
Yurman Design Inc., $203,794
NEI Group, $183,800
Dasan Inc., $180,900