Stung by the recession and nagging consumer fears, Barry's Jewelers Inc., which operates 147 jewelry stores in 13 western states, said Wednesday that it has filed a pre-negotiated business reorganization plan under Chapter 11 of the U.S. Bankruptcy Code.
The Monrovia-based jeweler is the latest luxury-goods retailer--including Zale Corp., the nation's largest jewelry-store operator--to seek bankruptcy protection in the wake of record low consumer confidence and slowing retail spending, particularly during the Christmas selling season last year.
Barry's president, Terry Burman, said that business will continue as usual. "No store closings are anticipated as a result of the restructuring," he said. "The plan was designed to allow each of our retail stores, which operate profitably, to continue to conduct their businesses without disruption. Barry's customers should see no difference." Burman also said no payroll or supplier accounts will be affected.
Barry's said it had signed a definitive restructuring agreement with its banks, a group of its bondholders and its major shareholders and had filed the document Wednesday--termed a "prepackaged bankruptcy"--in U.S. District Court in Los Angeles.
Burman said the plan is the culmination of months-long negotiations to restructure Barry's debts. "With this now behind us, we can once again focus our full attention on our business," Burman said. "We are very optimistic about our future."
Under the plan, bondholders, who now hold $46.5 million worth of debt, would receive a total of $3.75 million--either all in cash, or in cash and Senior Subordinated Amortizing Notes, a type of bond. They would also receive 90% of the shares of common stock outstanding on the effective date of the restructuring, later this year.
The deal calls for the 5 million currently outstanding shares of the company's common stock to be canceled and 10 million new shares issued. But the current shareholders will receive only 7% of the outstanding new shares. The majority of the company's existing shares are held by Barry's founders, David Blum and Gerson Fox, and Burman.
The remaining 3% of the new common stock would be issued to certain senior officers of the company, excluding current directors.
Over the last several months, Barry has liquidated 68 unprofitable or overlapping stores, centralized its buying and credit management functions and streamlined its management structure.