Friedman's Emerges From Chapter 11 with $125 Million Financing

U.S. jewelry chain Friedman's Inc. announced that its reorganization plan became effective on December 9, leading it out of Chapter 11.  The company also closed a new $125 million exit financing facility provided by CIT Group, Inc. The CIT Exit Facility has a five-year term and will be used for ongoing working capital needs, and for general corporate purposes according to the reorganization plan.

Friedman's said it has met all requirements to emerge from bankruptcy, and the implementation of the court-approved plan announced December 2 brings to a conclusion the financial restructuring.

“Since commencing our voluntary reorganization earlier this year, we have successfully restructured our financial position,” said CEO Sam Cusano. “Through this process, we have effectively put many challenges of our past behind us, permitting the company to emerge from Chapter 11 with a significantly less leveraged balance sheet, cash to fund operations and an improved operational structure.”

Consistent with the Plan confirmed by the U.S. Bankruptcy Court on November 23, Friedman’s previously outstanding common stock has been cancelled.  New common stock has been issued under an Investment Agreement with Friedman's Plan sponsor, Harbert Distressed Investment Master Fund, Ltd. 

Harbert invested significant amounts in Friedman's capital structure while it was in Chapter 11, the company said in a release.  In exchange for the conversion of all of Harbert's Chapter 11 claims and other interests in Friedman's and an additional $25 million incremental equity investment under the Investment Agreement made as part of the Plan closing, Harbert received substantially all of the capital stock of reorganized Friedman's.

Under the Plan, a trust was established for the limited purpose of pursuing claims against various parties in connection with the events which led to the investigations of the company by the SEC and the EDNY.  Any recoveries in connection with trust claims will be distributed to the company's unsecured creditors. The trust was funded by an amount up to $8 million.

The company has also succeeded in substantially de-levering its balance sheet under the Plan.  Upon commencement of its Chapter 11 case, the company was obligated on secured debt in the aggregate amount of approximately $149.2 million, consisting of prepetition revolving indebtedness of approximately $11.7 million; prepetition term loan indebtedness of over $67.5 million; and claims on account of the prepetition trade vendor program of approximately $70 million.  As a consequence of Friedman's restructuring efforts, most of this debt has been eliminated or refinanced under the CIT Exit Facility.