Clothestime Files Bankruptcy Escape Plan

Clothestime Inc. filed its bankruptcy escape plan Friday, proposing to give ownership of the 331-store young women’s clothing chain to management and creditors and leave current shareholders with nothing.

The plan, backed by a committee representing Clothestime’s creditors, is expected to be approved by the Bankruptcy Court this summer, the Anaheim-based company said. It said losses will continue as it pays its advisors and other bankruptcy-related costs, but it expects to return to profitability after it emerges from Chapter 11 protection from creditors.

“We are moving on,” Clothestime Chairman David Sejpal said in an interview. “We’ll be totally back in the black in ’98.”

The plan calls for vendors, tradespeople, banks and other lenders holding $50 million in unsecured Clothestime debt to get $7.5 million, or 15% of what they’re owed, in cash. Of that, $3.5 million would come in an immediate payout and $4 million would be spread out over four years.

The unsecured creditors would wind up owning 75% of the reorganized company, with the chain’s management owning 25%. Current shareholders, including Clothestime founder John Ortega II, would receive nothing.

Clothestime filed for bankruptcy protection in December 1995. Ortega later was replaced as chairman and chief executive by Sejpal.

Clothestime, which has closed 250 stores, said Friday it lost $31.6 million, or $2.23 per share, in the fiscal year ended Jan. 25, compared with a year-earlier loss of $43 million, or $3.03 a share. Sales fell near 37% to $195 million from $308 million. The company’s fourth-quarter losses totaled $17.8 million, or $1.26 a share, compared with a net loss of $35.9 million, or $2.53 per share, a year earlier. Sales fell nearly 33% to $45.7 million from $67.9 million.

Sejpal said he is especially hopeful because the junior retail market is improving, with attention turning to colorful, slinky fashions.

“The grunge look is clearly gone,” he said.