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Chapter 11 offers a company versatile choices for reorganizing

Women's clothing retailers across the country, including in Pennsylvania, have had a particularly bad year, with several national chains filing for bankruptcy. The latest company to file for Chapter 11 relief is a well-known bra and lingerie seller with stores in the western part of the country. The company also markets a catalog nationwide and online.

The company is perhaps best known for its risqué ladies' attire. Its catalogs are known for depictions of suggestive scenarios, with photos of ladies in various scantily clad, role-playing poses. It has been around for nearly 70 years, with this being its second bankruptcy filing in the past 15 years. The filing was preceded by a closing of all store locations, accompanied by an announcement that it would only sell its risqué attire online.

The brand is Fredericks of Hollywood -- a privately held company that was acquired by a group of investors just last year for $24.8 million. The previous filing was in 2000, but in that filing, the company emerged with new financing and a reportedly strong balance sheet, along with a self-described positive sales momentum. The store did not emerge in the long run from that setback, as evidenced by this second attempt to seek protection.

Instead, it ran into difficulties by having to announce that some of its products contained lead, which could cause cancer and birth defects. That was required by the State of California advertising requirements. The company will reportedly go back on the auction block. Reports say that there is a potential buyer already in mind.

Chapter 11 may be used by a struggling company to restructure its debt and enter into new investment transactions. The versatility of Chapter 11 may allow the company to give a better deal to potential investors by eliminating certain substantial debts and restructuring other existing debts. The restructuring of a debt in a Chapter 11 plan may call for a reduction in principle in some cases accompanied by a reduction in the interest rate of one or more specified loans. Qualified companies based in Pennsylvania may take advantage of the provisions of this federal debt relief opportunity, under the guidance and representation of a law firm experienced in complex reorganization procedures. 

Source: fortune.com, "Bra retailer Frederick's of Hollywood goes bust", Jen Wieczner, April 17, 2015

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