Furniture Brands' creditors blast sale terms

Alternate bid deemed better in many respects
Oct. 02, 2013 @ 08:43 AM

The two companies that have bid to take over Furniture Brands International both have sweetened their offers during the past week, but the second bid is a better choice by far, the committee representing creditors said in a court filing Monday.

The bid by Oaktree Capital Management, which is favored by Furniture Brands, has been increased to $260 million.

But the competing offer by KPS Capital Partners now stands at $280 million, the filing by the creditors committee said. It also has lower interest, fees and expenses than Oaktree’s offer.

Oaktree’s bid also calls for payment of fees that the creditors committee said were excessive and outside the bounds of what the bankruptcy code allows.

“While the committee recognizes the need for a party’s fees and expenses to be reimbursed in connection with the drafting and negotiating of a financing agreement, Oaktree should not have carte blanche to seek and be paid any and all fees generally associated with such work,” the filing said.

The creditors committee is made up of the top seven unsecured creditors, which include vendors owed money by Furniture Brands but also the employees’ pension fund. The committee’s role is to review elements of the bankruptcy case to try to make sure whatever deal the court approves does as much as possible for all of those owed money by Furniture Brands.

The committee objects as well to a number of provisions in Oaktree’s proposal that potentially could cost millions of dollars, including severance and related expenses from closing Lane Furniture facilities. Those costs would not hit Oaktree but instead would eat into the assets that otherwise would pay creditors.

Oaktree further wants to be granted liens and claims on assets that “should be specifically reserved for unsecured creditors,” the filing said.

The creditors committee also objected to a portion of the proposed procedures for other companies to bid on all or part of Furniture Brands that gives Furniture Brands itself sole discretion to all matters in the bidding and sale process without having to consult with the creditors committee.

A court hearing is scheduled for today on several issues, including auction procedures and a proposal to pay more than $3 million in bonuses to seven top executive. Such bonuses are not uncommon in Chapter 11 cases and are offered to reward successful restructuring and recovery of money for creditors.

Budd Bugatch, an equity analyst with Raymond James Financial, filed a letter with the bankruptcy court objecting to the proposes bonuses, saying they would reward executives for poor numbers, a “recurring theme of the company’s current leadership.”

A U.S. Bankruptcy Court trustee, Roberta DeAngelis, also has filed objections to the $6 million breakup fee that is part of Oaktree’s bid, saying, “Since the stalking horse purchaser has a strategic incentive to preserve its current interest in the debtors, it does not need the breakup fee to secure participation.”

DeAngelis also objected to the breakup fee being proposed as a “super-priority administrative expense,” which she said is not authorized by the bankruptcy code.