Harry & David touts plan to continue operations, eliminate debt

Harry & David Holdings has reached agreement with holders of about 81 percent of its senior notes on a reorganization plan that will eliminate most of its debt, the gourmet food retailer said in this morning's filing for Chapter 11 bankruptcy protection in Delaware

The holders also agreed to a backstop purchase, guaranteeing $55 million in newly issued shares will be bought to provide the company the necessary equity financing to emerge from Chapter 11.

"We believe that entering into this agreement provides the best opportunity for Harry & David to restructure its balance sheet on an expedited basis, strengthen its operations and create long-term value, while continuing to provide customers with the highest quality products and service," Kay Hong, chief restructuring officer and interim chief executive officer, said in a statement.

In the bankruptcy filing, Hong said the prearranged Chapter 11 plan will allow Harry & David to operate effectively and efficiently while the court oversees the matter, and to avoid adverse consequences.

"Among other things, Harry & David seeks relief aimed at maintaining: loyalty of its customers; confidence of its stakeholders; and morale of employees, Hong said in the filing. "Gaining and retaining the support of these key constituencies is critical to (the company's) efforts to successfully reorganize."

No additional layoffs are planned, said Cassandra Bujarski, a spokesperson for Sard Verbinnen & Co., a New York public relations firm and advisor on acquisitions and mergers. "There's nothing wide scale."

Harry & David seeks approval to access a $100 million debtor-in-possession credit line to pay for employee wages, benefits and other obligations. The company also has secured a commitment from its current lenders to provide up to $100 million in exit financing. The company expects no interruptions to customer service, and consumers can continue to purchase Harry & David products online, through catalog orders and at the 70 Harry & David stores nationwide. The company finished 2010 with nearly double the number of stores.

(Updated 10 a.m.) In addition to its remaining stores, Harry & David still has leases for 52 other store locations. According to the filing, Harry & David seeks to reject those leases. The company also leases storage or warehouse space at a dozen locations, costing $19 million annually.

According to the bankruptcy filing, the company relies on 1,400 vendors that provide everything from paper for catalogs and corrugated paper for delivery boxes to chocolate, butter, cheese and fruit. Outsourced products include selected produce, meats, confections, snacks, condiments and tabletop entertaining and home decor accessories.

Harry & David said it has approximately 1,950 full-time employees throughout its operation.

During calendar year the company generated sales of about $416 million. At the end of its second fiscal quarter, on Dec. 25, 2010, the company had $304 million in assets and approximately $361 million in liabilities.

On March 1, the company skipped a $7 million interest payment owed to bondholders, but it remains technically in a "grace period" until Thursday. As of the end of last year, Harry & David had roughly $198 million in bond debt, along with its $105 million revolving-credit facility. As of today, Harry & David estimated it owes approximately $37 million for raw materials and other unsecured obligations for goods and services.

— Greg Stiles


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