Fashion Channel Files for Protection From Its Creditors

Fashion Channel Network, a shop-at-home venture that sells clothing and accessories over cable television, Friday filed for bankruptcy protection, citing “severe liquidity problems.”

The company, which operates from a studio and warehouse in Carson, will continue under its present management and said it hopes to file a plan of reorganization “as soon as practicable.” Fashion Channel added that it is negotiating a deal under which an unidentified third party would continue to produce and distribute the programming and to buy and sell merchandise.

According to an attorney for Fashion Channel, the filing under Chapter 11 of the U.S. Bankruptcy Code lists liabilities of just over $9.3 million and assets of $5.8 million.

The largest creditor is Los Angeles-based Union Bank, which is owed $4.9 million. The petition next lists Tele-Communications Inc. and its affiliated United Cable Network, Denver-based firms that control 44% of the young company. They are owed a total of $3.3 million. AT&T; is owed $324,000.

Under Chapter 11, a company can continue to operate while it works out a plan to pay creditors. As a result, the filing “makes survival somewhat easier for a while,” said Kenneth H. Levin, a lawyer for Fashion Channel.

Richard M. Harvey, another attorney, said a small number of the company’s 200 or so employees would be temporarily laid off until Fashion Channel comes up with a plan of reorganization. The object, he added, is to continue to operate. “That’s the purpose of a reorganization as opposed to liquidation,” he said.

Fashion Channel, which started up last October, first indicated that it was financially on the ropes in April, when it said it needed an immediate cash infusion to keep running. A subsequent agreement to sell shares to Video Marketing Network for $6 million fell through.

Then on July 14, Fashion Channel reported that, as of April 30, it had negative stockholders’ equity of $2.7 million, with “substantial additional losses” incurred since then.

As Fashion Channel continues to negotiate an agreement that would save it, the negative net worth “becomes a large hurdle for an investor to jump over,” said Larry Gerbrandt, an analyst with Paul Kagan Associates in Carmel, Calif.

The company’s attorneys declined Friday to identify the third party with which it is negotiating, but the most frequently mentioned possibility is Shop at Home, a TV shopping venture based in Newport, Tenn.

Gerbrandt noted that the filing does present one saving grace in that it appears, at least temporarily, to prevent cable operators from dropping the program. Some operators, he said, had threatened to drop Fashion Channel in favor of Turner Network Television, which is being launched Oct. 3.

For the year ended April 30, Fashion Channel reported a loss of $18.5 million. Sales were $5.5 million. For the year’s last quarter, the loss was $5.25 million on revenue of $5.21 million.

Fashion Channel went public in a $20-million offering last October that supplied most of its start-up capital. It is carried on a full-time or part-time basis on cable systems serving about 10 million subscribers.