May 3 (Bloomberg) -- Linens 'n Things Inc., the bankrupt housewares retailer, will be able to keep operating while it shuts 120 stores and reorganizes after winning interim permission to borrow $700 million to pay off older loans.

Should the company, taken private by Apollo Management LP, win final approval later this month, the money will be used mainly to pay off a group of 10 lenders owed at least $430 million, including General Electric Capital Corp., hedge fund operator Silver Point Finance LLC, and JPMorgan Chase & Co.

Winning interim approval helped the company, its lenders and bondholders avoid ``a fight at the outset of the case, which would not have helped the debtors' ability to restructure,'' company attorney Mark Collins told U.S. Bankruptcy Court Judge Christopher Sontchi in Wilmington, Delaware.

Linens, and its parent, Linens Holding, Co. filed for bankruptcy yesterday, listing debt of $1.42 billion and assets of $1.74 billion as of Dec. 29. The company blamed its bankruptcy on a slowdown in consumer spending and said it followed an unsuccessful overhaul attempt in 2006 after Apollo took control in a leveraged buyout.

Collins also said that the company hopes in June to start liquidating the 120 underperforming stores it is planning to close. The company currently employs about 15,900 workers in its 551 U.S. locations.

Sontchi also gave the company approval to continue paying employees. He said the company must return for final approval of an employee bonus program.

Noteholders are concerned that the $700 million bankruptcy loan's payoff would come ahead of the $650 million they are owed, attorney Adam L. Shiff told Sontchi.

The noteholders didn't oppose the interim approval, but should Linens financial position weaken too much in the next few weeks, they may fight final approval, Shiff said.

``We are in the first loss position as the debtors' position erodes,'' Shiff said.

The case is In re Linens Holdings Co., 10-832, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

Last Updated: May 3, 2008 00:01 EDT